Deal analysis question

3 Replies

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I️ am currently working on my first fix and flip home but really just dove in and didn’t really run rental numbers because it was such a discount buy, I️ had to act fast. But with that said, I️ am now diligently looking for my first buy and hold rental. My end goal is to acquire as many properties as possible for long term passive income.

But my question as the title suggests is about analyzing a deal.

Brandon Turner says he personally never picks up a rental home that doesn’t have a cash on cash return of AT LEAST 12% after everything is accounted for (PITI, cap ex, vacancy, repairs, management, etc).
But then he also says if he can cash flow $100-$200 per door, that is a winner as well.

I️ am in Greenville, SC and have been calculating many many deals. Nothing seems to fit this mold.
Sometimes the numbers work out that I️ could cash flow $150+ per month, but the cash on cash return in sub 7%.

Other deals that fit the mold of the 1% model ($54,000 purchase price with a $550/mo rent) ends up only being a 4% cash on cash return, so then that doesn’t make sense to me.

I’m curious what would be more important?
A better return (because the point here is to get better returns than the stock market) or higher cash flow?
I️ simply have not found a deal yet that hits the 12% cash on cash return.

Most homes that can charge 1200+ costs about $215k

But on the other end of the spectrum, homes that are more on the cheap side (50k, 60k, etc) only call for about $550/650/mo. and more repairs, etc.

Follow up question while I’m here:

When a whole year goes by and there have been no vacancies, what do you do with that built up reserve? Put towards the house? Pocket it? Keep it in case there is a long period or vacancy? The same goes with repair reserves.

Thanks a lot.

Originally posted by @Blair Boan :

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Great questions @Blair Boan! Following. 

@Blair Boan I have no deals under my belt yet but have seen others post on this.  For your reserves I'd make sure you have at least 6 months saved for all debt servicing and expenses before doing anything fun with your excess reserves. Then maybe consider saving the excess for the down payment on your next property.

I'd also say it all depends on you goal/plan. If you're looking for cash flow then that will be more important than COC. If you don't want to tie up too much cash than COC is a better gauge than cash flow. It's all personal and whatever works best for your plan. As a newbie with no capital I'm not too concerned with COC but looking to stay above 8%. I'm more concerned with cash flow at least $100/door.

Hope this helps. Good luck!

We have held anywhere from 10-15 rental properties in Greenville. Cash on cash returns have usually been weaker than other areas for us in this market. However appreciation in Greenville has been huge. We never banked on appreciation, but it has been a huge plus. You generally need to be in the $120k-$180k to see the appreciation I am talking about. Our holds just reappraised at $147k and we built them for $107k. *We are licensed builders and use that to our competitive advantage. The other really nice part is we have been able to find great long term renters. While this doesn’t allow us to aggressively raise rent, it does allow us to cut out on vacancy cost and overall maintenance cost. We have been fortunate to find long term renters that repair a good bit on their own. These trade offs have made the property very valuable to us in that market. The deals are definitely tight in Greenville right now, but they are still there.

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