What do you consider a good proffit from a property

Question

Now I know theres a million varriables, But what do you consider a good return on your rental. Do you go off of dollar value or do you look at percentage? Say you have a SFH vallued at 170k, After all expenses do you call $100, $200 $400 a good return?

Account Closed · Answer

$200 per door is what I would want.

Account Closed · Answer

wow - That question is really loaded but this is how our firm looks at deals.

We are very much risk reward oriented. By that I mean that the greater the risk the higher the return. I like to re-phase the question by asking was is your risk tolerance. If you define a  low/no risk investment such as a bank insured CD @ 2% - then another way of saying that is that there is a 2% chance that you will lose money (I know not a direct correlation). If an investment has a 10% return, then there is a 10% chance that you will lose money.

We target our "safe" investment at 9% these days. If we see a deal offering 20%, we have to get comfortable that there is a 20% chance that we will lose money. If we can mitigate that so that we make sure that we earn our 9%, then we would be willing to take a look at that deal knowing that our upside is worth the risk.

With respect to SFR, you need to factor your time as an add on to the return. So if your time is worth $50/hr and you spend 500 hours on the project, then you should add $25,000 to your safe return as a min level.

Hope that helps.

Gilbert Dominguez · Answer

Think of this as a business just like any other business and of course you are going to do it to earn money either as cash flow meaning on an per month business or as a long term investment where you will be looking to earn capital gains, meaning your properties will be valued much higher as the future than they are the day you buy them or you are going to use a combination of the two strategies. You want to evaluate the different kind of financing available to you and what each method of financing offers you.

If you are not dealing in all cash of course you want to evaluate and know what its costing you to do business and determine for yourself what is an acceptable return or profit for you. What will be your plan, what are your own personal goals. What make sense to you. and what market are you in. In some markets it is common to get a 15% gain over expenses and in other areas only 2%. You have to decide what you want to do, stay in your local area or venture outside of your area.

Do you want to deal with a single family property at a time or manage a multi family property each has unique features  and liabilities.

This business requires you to have allot of education, knowledge and experience which you will gain. It is up to you to determine what all that is worth and make sure you compensate yourself through your properties to make it worth your while otherwise you will not want to keep doing it.

Is $100.00 per unit net gain enough, is $200.00 or $1,000.00 only you can answer that for yourself. Then its up to you to learn what is achievable because you also want to know what is realistic and common or at times even what is legal.

Overall you want to make sure your properties will generate enough to cover at minimum the expense of owning them which means to pay for maintenance, insurance, and upgrades if necessary plus cover the cost of finance, loan and interest payments, and property taxes which you as the owner will be liable for.

Will you be keeping a full time job to help you pay for your personal living expenses and save money as well as be investing in real estate or do you envision earning enough money to do real estate investing full time. Knowing the answer to these questions will at least provide you a basis for determining what your yearly gains need to be at minimum and of course you will be wanting to optimize that.

You have to learn to think for yourself but if you listen to those with experience like Brandon Turner here on BiggerPockets he tells everyone he shoots for multi family units in which he will cash flow $200.00 per month per unit. Experience has taught him that is what makes sense for him, what he has to earn in order to cover all expenses and make it worth his while to be responsible as the owner to meet all his liabilities for a multi family building. He also tells everyone to never buy a multifamily building at a price above 20% below market. Try to reason why he would make such a recommendation.