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).
@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.
@CJ M. What is the total amount you're allocating towards capex annually on these? I think the danger in using percentages is that for less expensive properties, even when using a much higher percentage, the gross amount may not be enough to maintain a property. For example if you're using even 50% but the total amount allocated for capex is only a few thousand a year, it won't be enough to cover big ticket items like a roof, furnace, driveway, water heater, siding, sewer line etc. or even appliance replacement as those things come up, which they do. That's why less expensive SFR's generally aren't profitable over time. So I'd look at all the major cap ex items you'll potentially need to address in the next few years and make sure your gross capex allocation is enough to maintain the property without dipping in to the $2,400/yr. cash flow, which isn't a very wide margin before you are getting into negative CF territory.
I know Brandon T always sets his goal at around $200 per door and 12% Cash on cash return. You set your own standard, but that deal I will do all day. Repeat that a few times and with equity growth you'll be looking good. Best of luck.
I kind of feel like there's a missing detail here. 75% CoC and only $200? How is that possible? Just great financing connections? As long as you make sure you're saving enough for long-term capex, keep doing what you're doing, but with the limited information I have, it seems off somehow.
@Jacob Pereira You can achieve those high CoC % rates after a refi. His property appraised higher than his initial "all-in" investment, bank gives him 70% of the appraised value. He recoups most of his "all-in" investment. Thus, CoC gets much higher. You can also achieve infinity CoC % with this method if you are able
to recoup more than your “all-in” investment after a refi = no money in the deal but you get the monthly CF.
@redha Laafia, I'm not sure that that would still actually be considered CoC. At the very least, it very much misrepresents how good the investment is. If, for example, the OP spends a million dollars on the property, and then refis a year later so that $200 a month is 75% CoC, no one in the world would consider that a good investment.
Perhaps a finance major or someone dynamic enough to Google it can chime in?