3-year rule — anyone ?

4 Replies

Purchase price + rehab price = 3 years of NOI

In many places, it won’t happen.   But , doable in some places.  Working for you ? 

Originally posted by @Ethan Smith:

Purchase price + rehab price = 3 years of NOI

In many places, it won’t happen.   But , doable in some places.  Working for you ? 

I am usually aiming for more like 4 to 5. That is a really tough metric to hit especially using NOI as I could see Gross Income being more realistic.

That would mean you would have to be getting a $30k property all in that rents for $1k a month and has less than $200/month OpEx. That is a very narrow market I have to feel like. 

This being said I calculated and my last deal is right around that but it was not what I am expecting to be my norm and I am just hoping I can keep the rent where it is at.

All in Purchase: $24,000

Rent: $875

OpEx: $200 (Taxes: $700/yr Insurance: $300/yr)

NOI: $675

3 Year Rule: ($675*12)*3 = $24300

Say $30k acquisition cost with $15k noi per year. 

2-unit light rehab.  $700 per unit rent. 

2-3 years is the goal. 

Possibly refinancing after 1 year. 

Your question was posted in the multifamily and apartment board, MF is 5 units and above.  

This is not even close to accurate for anything I have ever bought.

The property I closed on Monday was 200 units for ~19mm with annual NOI for years 1-3 of nearly 1.3mm; 3x NOI = 3.9mm on a 19mm purchase.