Investor · Atlanta, GA · Member since 2015 · 31 posts · 1 vote
Hi All...for those who Buy and Hold Multi-Unit properties for positive Cash Flow, what process do you use to determine your minimum acceptable Total Annual Net Cash Flow per purchase?
I've heard several people say they need to net no less than $200/door but if you're talking about a duplex that's only $400/mth or $4800/yr versuss say a 30 unit complex where the same $200/door equates to $6000/mth or $72,000/yr. For some the $4800 duplex would be great, for others $50K or better is the minimum acceptable, so they'd only consider the 30 unit complex.
To be clear, I am not asking how to calculate CF, but I would like to understand what are some things to take into consideration when determining Annual CF criteria that make an investment worth your time and effort to pursue?
Investor · Milton, DE · Member since 2015 · 65 posts · 14 votes
11y
I used to shoot for $500/month cashflow. But that is when I was not calculating for vacancy, cap x, maintenance, and PM... Now that I calculate everything, $100-200/door is fine.
Investor · Atlanta, GA · Member since 2015 · 31 posts · 1 vote
11y
Good point Neal C....I'd like to understand criteria for net cash expectations after all cash out flow including debt service.
Originally posted by @Neal Collins: What's your debt service per annum look like? Then you'll truly be able to gauge what your netting each year/month.
Developer · Portland, OR · Member since 2014 · 732 posts · 490 votes
11y
So that's really up to you. Your Net Operating Income on the property is really what your left with after subtracting out expenses. That does not include debt service. So let's say my ROI for the year is $30,000 but my Debt Service is $25,000, then my cash flow for the year is $5,000. With 12 months in a year that was for one unit then you're getting $417 per month. But if that is spread over 8 units, then that's only $52/month per door. That's a lot different.
Then you need to factor in how much equity it takes to get that cash flow. If I sunk $500k into a place and only got back $50/month total then I'd be pretty upset.
Broker · Logan, UT · Member since 2013 · 1k+ posts · 1k+ votes
11y
In general, cash flow should be non-negative.
It's the cash-on-cash that makes the difference. For example, if I'm not tying up lines of credit and can have $0 cash into a property that never costs me money, I'm happy to take the depreciation while my tenant pays off my mortgage in an appreciating market. This represents an infinite return.
I have some clients though, that need a minimum income of $200-500/mo per property just for the aggravation of having to think about it and do the annual paperwork. Usually this criteria is combined with length of time required to recoup their original investment, typically 2-5 years. These clients care less about equity.
Investor · Milford, CT · Member since 2015 · 200 posts · 69 votes
11y
It depends on what your goals are, but cash flow is king. Cash flow will smooth out the bumps in the road a crash like 2008 will bring.
Every investor has a different strategy, mine is I focus on A areas because I rather have fewer doors that pay me more. Less headache IMHO to have one that pays you $1900 than 4 at $500.
Investor · Vancouver, WA · Member since 2014 · 359 posts · 143 votes
11y
It is really a personal criteria but I would say if lower grade areas you would want more cash flow and the A type areas you typically get less cash flow.
Really Cash-on-Cash return is something better to talk about because if you buy with all cash then you are cash flowing great but not great return. On the flip side if you put 20% down your cash flow is less because of the mortgage but much better return.
Investor · Atlanta, GA · Member since 2015 · 31 posts · 1 vote
11y
Thanks @Austin Youmans ...that perspective is helpful as I'm conducting my analysis. I'm looking to develop guidelines that if a property doesn't have the potential to meet, I don't waste time on it.
Investor · Milton, DE · Member since 2015 · 65 posts · 14 votes
11y
I used to shoot for $500/month cashflow. But that is when I was not calculating for vacancy, cap x, maintenance, and PM... Now that I calculate everything, $100-200/door is fine.
I used to shoot for $500/month cashflow. But that is when I was not calculating for vacancy, cap x, maintenance, and PM... Now that I calculate everything, $100-200/door is fine.
I have mostly SFH now, and one triplex. Shooting for mostly Multi Family from now on though. But same goal, $100/200 per door regardless of multi or single.