ROI on single family rentals?

Question

What is a rule of thumb ROI percentage to shoot for with single family rentals?

Jeff McCaskey · Answer

Josh,

I set a minimum criteria for myself at 200$/mo cash flow on any deal I get involved in on a rental. You can set your own criteria and make it whatever you want reasonably. Once I bought one that broke even and went with the equity building routine and most of mine actually beat that bench mark by a nice margin.

Josh C. is right, fly over country has this around nearly every corner and that's one thing about why it's so wonderful living out here!!!

Charles Morgan · Answer

Why?

Lets look at my current home, current principal balance $42,000, rental income ~$800, cash $0.

after refi: Principal balance $72,000, rental income ~$800 (payment under $700 w/escrow), cash $26,000 to invest in more.

This is only a sample, in Texas we can only cash out refi @ 80% of appraised value.

Jeff McCaskey · Answer

@Josh Wendt

You can approach this however it suits you and your family best Josh. If you want a few rentals and some "other" income then letting them pay themselves off is what alot of people do. It's very safe that way if it's not a business per se.

The reason why you get the feeling from most that it is generally viewed as negative to have a property paid off is due to the fact that the view point of most investors is likely a persistent growth mentality and having an asset that you could refinance and take cash out of does not help you grow if that cash is stuck in the form of "equity", it must be converted through a refinance to generate liquid cash for additional deals - to grow and increase cash flow and profitability of the business.

Hope this helps, let me know if you have further questions

Jeff

Josh Wendt · Answer

I understand why you would go to a 30 year in most cases. But if the payment difference is $40/month from 15 to 30, would you still go 30?

Why is it generally viewed as a negative if you have a property paid off and are earning income on it? I know there are taxes, but in looking for a deeper explanation. Are those taxes more than what your tax bracket is?

Michael Clemson · Answer

Typically, the approach would be to use a 30-year mortgage. This will increase your cash flow and allow you to purchase more properties.

Josh Wendt · Answer

Thanks, all. Yes, we are pretty new here. We have two rentals already, but never had this detailed a way to analyze. Great tools here!

So when buying an inexpensive new single family, do you concern yourself with the mortgage payoff? How does that factor in for you?

I'm taking the rent less taxes on profit, to estimate what this property would look like once a 15-yr mortgage is paid off. Adjusting the monthly expenses down to eliminate the mortgage of course. Thoughts?

Bryston Wisekal · Answer

It depends on your area but I agree with Josh. Cash on Cash should be the focus as that will make or break the investment over the long term.

ROI on single family rentals?

Most Popular Reply