I often hear investors refer to netting X dollars per door. That makes no sense to me. $200 per door per month might be great if you have 10K invested, but terrible if you have $100K invested. Why does $ per door have any relevance at all?
It depends on how the deal is structured. If you are close to 100% financed on the deal then $200 per door after all expenses are paid is pretty darn good.
$100,000 SFR financed 100%
$1500 gross rent
$750 NOI (assuming %50 rule)
$535 mortgage payment
$215 net cashflow
That same property if owned free and clear would net $750 after applying the 50% rule because you would have no mortgage expense.
I prefer to analyze things on a % based return.
It matters because just as in your example $200/door for a 100K investment isn't good, neither is a 12% return on $5,000 which is only $50/mo. That IMO is not worth the necessary work required of managing a rental...or PM whichever the case.
They are two separate metrics that paint a different perspective on the same picture and then you can make a better decision.
Updated about 4 years ago
I don't mean to say a 12% return is not good on a 5K investment, but in the context of a rental it's not substantial enough absolute return ($50) to justify the risk and management required for it.
% return is a number in terms of today while cashflow is number in terms of the future.
$ per door is a good metric when looking longterm on the cashflow side of the deal. If I am financing a property, having somone else payoff that loan, cover all the expenses AND still get $200/month in my pocket - I am pretty happy. You have to look at it long term, eventually that loan will be paid off and the amount you recieve extra per door will be a good indicator how much you recieve when the asset is paid for.
There is no one perfect metric to evaluate a deal. $ per door is just one example of a quick measurement to compare deals. It is not an either or evaluation. You should use many criteria to evaluate your deals.
Using our own example what if the $10K bought you one door but the $100K bought you a small apartment with 15 doors. Now that $200 per door has relavance.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing