Rental Property Investor · Stowe, VT · Member since 2013 · 102 posts · 27 votes
I am wondering what your "trigger point" is? By this I mean when you are analyzing a deal what makes you decide to pull the trigger and move forward?
For buy & hold investors if you use CoCR what % gets you to take action and look at things deeper? If you use $/unit per month when does that light bulb in your head turn on? $100/unit/month... $200....$500?
For those of you in the flipping business how much profit do you need to see before you decide to go for it? I know J Scott mentioned he wants $20k per flip, is that about what the rest of you usually aim for?
I realize that many different metrics are at play and no one number will prompt you to action but what are your minimum standards before pursuing the purchase of your next deal? I am asking because I analyze a lot of deals, some look good, and some look not so good, but most are profitable on some level. I have a limited supply of capital so I want to be selective, but I also don't want to always swing for the fences and try to hit a grand slam with every deal. Will you share your minimum deal selection criteria?
I am a buy and hold investor in the North Houston area. I'm looking for a monthly rent to purchase price ratio of 1.35%+. Purchase price includes all costs to acquire and get a property rent ready. In the neighborhoods I buy, that is all I need to know to pull the trigger. Using that metric I can predict with relative accuracy my CAP, COC and cash flow.
We are buy-and-hold investors and, to-date, have expected all of our acquisitions to cash-flow positively from day one.
There is no one parameter that tells us to buy, it's the opportunity in its entirety. On smaller properties (1-4units) what is the CoC (e.g. 10-12+), the location, the state of (dis)repair; can we expand; is their a future higher use for the property.
On the commercial buildings (5+ residential or mixed use ... we have yet to venture into retail or office) the CAP rate; location; opportunity for forced appreciation/performance improvement; financing availability/terms; building age and repair; environmental, debt coverage, etc.
We use general rules like the 50% rule & no less than 1% rent to purchase to get started but take other factors like location, school district, job growth, in a flood zone or not, is wind insurance required, etc into consideration.
One criteria that we look to meet is our total out of pocket. Of course it's different for everyone but we like to keep it under $20k if possible. You don't want to meet all of your other metrics and not have enough cash for your next project.
Use what others have said as a base and massage it to where you're comfortable to pull the trigger.
The only thing that I would like to add on the buy and hold side is, in our single family portfolio we like to achieve at least a 100% return on capital gain, meaning that if it costs us 10K total to get into a deal then we like to have at the VERY least 10K in equity (usually more but this is a bare minimum). As for cash on cash returns 15+% and at least $250/month cash flow.
I know J Scott mentioned he wants $20k per flip, is that about what the rest of you usually aim for?
Very conservatively, I try to get $20K. More realistically, I'll typically do a deal that generates a 15% return on sale price or $15K, whichever is more.
Because we syndicate our deals, we look at deals that will give our passive investors a coc 7-8% first year and project a 15-25% annualized (yearly average) return after 3-7 year hold and sale.
We do buy rehab and sell. I look for a minimum 15k on a deal. This is any deal one of my crews can start and complete in under six weeks.
If its over six weeks a minimum of 20k.
I use all private money to fund most all my deals at this point, cost of money is figured in as an expense, so there is no coc return ration figured in my calculation.
We buy highly distressed properties in good neighborhoods to rehab & hold, but we evaluate each deal as though we intend to flip the property. We've found problems with every metric, but have consistently done well as long as we don't invest more than 75% of the after repaired value.