Hi everyone, I wanted to pose a question about analyzing potential properties and how to make the numbers work. For my personal goals and purpose of this example I'm looking for long term buy and hold using conventional financing with 20% down at 5% interest assuming closing costs at 5% the house and looking for a minimum of 10% COC return. What I am trying to determine here is a "rule" of my own to use when evaluating potential leads and if this is feasible. I'm looking in the KCMO market and used the average property tax rate of 1.38% in jackson county as my number for taxes(not sure if this makes sense). I would appreciate any insight and positive or negative criticism.
I've heard about the 2% rule, the 1% rule, the 50% rule and how these rules should be used as a general test to determine whether to evaluate a property further. I've also heard that the 2% doesn't really apply at this point in the market cycle and that 1% are harder to find than ever now.
By my calculations, it seems that nothing under the 1.25% rule will cashflow. I realize that everyone uses different numbers but I prefer to be more conservative in mine and here is how I've broken it down. This is also assuming a property is rent ready at purchase. I've used round numbers to make things easier.
purchase price: 100,000
closing costs: 5,000
down payment: 20,000
rent: 1250 <----- must rent for this amount to make the numbers work
vacancy @ 10% = 125
property management @ 10% = 125
repairs @ 5% = 63
capex @ 8% = 100
taxes @ ~ 1.38% = 137
insurance @ 65/mo
cash flow after all expenses = 205/mo = 10% COC
Does anyone have any opinions? Also is it feasible to be looking for these kind of purchase/rent ratios at this point in the market?
hello, I am a new investor in Kansas city MO, and those numbers look right, for me I did alot of research on calculations for numbers. So my expenses I been finding a good range to do is 37% of the rent, so For this deal I do 1250- ( vacancy 7%=87.5, capX 10%=125, maintenace 10%= 125 managment 10%=125) all equal to 462.5- ( P&I + insurance+ taxes) 632= 155.5 cash flow off my numbers. The numbers you did were for 33% of rent and that works because I usually knock off percentages off my numbers depending how the property condition is. If you want check out this address 7207 Olive street KC, MO 64132. I am looking at stuff like this which are good cash flow. This is a low income area somewhat but it is by a college. But those type of numbers in KC are very attainable even houses around 100K.