Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
Hello,
My turnkey/rehabbed SFR properties have yielded CoC of approx. 75-100%+ (after refi). The average cash flow of all of them is just over $200 per month per door. I'd very much like to continue this strategy as I can grow very quickly, but is the cashflow too low? Obviously the higher the better, but I can possibly do 5-10 more of these type of deals soon. I like this approach however I want to make sure that when I'm planning my long-term growth goals, I'm being smart.
Thank you in advance.
P.S. For the purpose of this question, I'm calculating cash flow as (gross rent) - (PITI) - (25% allowances for everything else).
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
7y
@Account Closed I will be the contrarian but explain my rationale. You can think about it or ignore it.
>I have 20-30% equity in all of my refinanced properties, I can't say I would even be able to sell them now for what I owe on them.
This means you currently have 0% equity. I can see this if you refinanced immediately after a rehab, but a couple years of tenant wear and tear later but you indicate that you have been doing this a year so this is surprising. I do not know how this could occur but that is not my issue with your situation.
My issue is the scalability in the no appreciation market. If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month,still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
I would pass on the initial question posed using the numbers provided. $200/RE per month with no appreciation just will not provide the return I require for that level of effort.
Maybe you can find properties with similar cash flow that have a little better appreciation in your area. Note 5% appreciation with an 80% LTV is a 25% return from the appreciation. Otherwise, you need to find properties with better cash flow.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Lexi Teifke
Thanks for the encoragement Lexi. Yes, the return is solid, but hearing folks saying their min CF is something like $400-$600? made me want to pose the question of lower CF but high return.
Issue I would have is your time needed per door. If it's minimal, I say keep it up...if it's a lot of time then maybe larger deals make sense. These must be pretty inexpensive houses?
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Adam Apalategui
Thanks Adam. These particular properties are rehabbed turnkeys in the $50-$70K range, so very minimal time on my end.
I just don't see how I could get $1000 in rent and after PITI and allowances still net $400-$500 in CF (without taking a hit on the CoC return).
My feeling is, if I can purchase a rehabbed property that cash flows for no money out of pocket, it's worth the lower CF...unless I'm way off base here.
Rental Property Investor · Austin, TX · Member since 2016 · 361 posts · 394 votes
7y
When it comes to return, I only care about percentages. Absolute figures aren't useful. I only care about absolute figures when considering if I am being properly compensated for my time, and it sounds like you are investing minimal to no real time in these deals.
My question is - what type of debt are you getting on these properties? Are they conventional refis, or from some kind of portfolio/private lender? Fannie Mae guidelines specify a maximum number of mortgages of 10. Non-conventional lenders may have their own limits as well.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Kris Wong
Private lending that isn't subject to FM/FM guidelines. So far I've been at 70-80% LTV, and 6-7% APR. Amortization is anywhere from 30 year term, to 5 year arm (w/1% max cap every 5 years).
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Lexi Teifke
I see you're in Austin (I used to live 45 min outside of Dallas). My guess is while CF is lower you're getting pretty explosive appreciation where you're at?
For me, I'm investing in an area with probably little to no long-term appreciation :-/
Rental Property Investor · Austin, TX · Member since 2016 · 361 posts · 394 votes
7y
Sounds like you've got quite a nice setup there. It's great that you're able to get that kind of return/cash flow with a 6 - 7% APR. I would ride that train all the way to the bank.
Rental Property Investor · Austin, TX · Member since 2016 · 361 posts · 394 votes
7y
Appreciation - sure, we've got it. Doesn't do me any good when there's no cash flow w/o major hustle. I'd take that 75% return with no time commitment all day every day.
Real Estate Agent · Salt Lake City, UT · Member since 2014 · 473 posts · 230 votes
7y
@CJ M.
That is a great return, I would keep plowing your money back into it over and over again! Sure, maybe you are not getting $400-$500 a month. However, you can keep recycling your money, whereas generally people who are getting those higher cash flow-year-olds have to leave more of their money in the deal, and usually they run out of steam once the money dries up
Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
7y
Most people's numbers I've seen that are cash flowing $400+/unit/month with 75% leverage aren't properly taking to account all expenses. They don't consider management, vacancy, & capex properly usually, especially in the SFR space. Doesn't matter if it's rehabbed or not. You have to account for the big ticket items.
$200-$300 sounds about right if you properly underwrite the deal.
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
@Account Closed Hey CJ, I think your strategy works, and as we all know Real Estate is market (and submarket) specific.
Cashflow of $200/month is a thing of the past in some markets, so if you are able to get that then keep on going but keep a tight pulse on the market, so that you can pivot before you start to see compressed cash flow numbers. 💸💸💸
In terms of the long term, it all depends on what your goals are in terms of lifestyle. Managing a lot of single-family rentals is different when you are in your 30s than when closing on retirement age, so you can always sale your appreciated portfolio and deploy that capital into a more passive play or start doing that when you think it's appropriate for you.
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
7y
How are you purchasing a turnkey property, and turning around a refi without any forced appreciation? Are you doing a bank refi that goes against your ten property limit? I'm confused as to how you're pulling money out immediately, unless if you're purchasing off-market at very low prices
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
@Account Closed yes I would buy a deal that cash-flows a couple hundred a month if it was a value-add deal where I could force appreciation and capture some equity and/or there was a reasonable expectation of market appreciation (ie property and/or rents). If the deal is thin on cash-flow, the challenge is holding the property especially when the big ticket items come due someday (ie roof, havoc, etc). Capturing equity and/or appreciating property values/rent will increase the likelihood of a successful hold and an exit at some point in the future of your choosing.
Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
7y
How long have you held? Have these numbers held up over tenant vacancies, damage, eviction, etc?? If so and the numbers are legit then yes I'd be happy with that.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Victor S.
That is correct. I take gross rent X 0.25. That said, I now have enough cash reserves to cover most major things, so I'm toying with the idea of ignoring the 25% altogether to grow quicker. Then, if I did have to dip into my reserve, I would just replenish it immediately.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Brian Gerlach
Thanks for the response Brian. While I have 20-30% equity in all of my refinanced properties, I can't say I would even be able to sell them now for what I owe on them. That's ok though, because I'm looking to hold them lomg-term. Also, in the area I'm in, there's little to no appreciation, so I'm mainly looking for CF and equity build-up as I try to grow quickly.
Contractor · Warren, OH · Member since 2015 · 147 posts · 55 votes
7y
@CJ M.
Hey CJ how did you get started with real estate investing? I currently am still in the planning stages of real estate investing but your story is really intriguing and I noticed you’re only about an hour away from me. Are you strictly investing in Canton only or are you in other markets as well? I’ve heard Cleveland is somewhat strict on inspections is Canton the same way?
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Robert Arquilla
My area is a PIA with inspections too!!
Llllooonnnggg story lol. Quite frankly, I was unexpectedly laid off from a "stable" job I was at for 7 years (and 3 months after I relocated for it). I took a job as a consultant to pay the bills and thought "never again will I let my livelihood be determinded by someone else." I felt like, if I was going to fail, I was going to do it on my own terms in the future...so I found a crappy SFR in a good area, made an offer which was accepted, then BRRRR'd it successfully. At the same time I put myself out there (no egos in this business) and got to know local investors. Since then I've rehabbed some properties of my own, but have bought more off of others I've become close with.
I just recently joined the local REI, and have been enjoying that as well, so I'd recommend doing that.