Questions about Multifamilies and cashflows and other metrics

Questions about Multifamilies and cashflows and other metrics

Port Saint Lucie, FL · Member since 2016 · 9 posts · 1 vote

Hey guys, im 20 and looking to get into real estate investing, I'm about to get my RE license here in south florida on the treasure coast and have decided that multi-families would be the way to go for myself in the coming future. I'm currently putting my plan of action together. 

My ultimate short term goal is to acquire 7 units in my first year, and possibly live in one of them.

As far as my long term goal is concerned, in ten years i would like to own a minimum of 75 units and scale myself as large as I possibly can. 

My strategy is to buy multi units and hold them as rentals to build up my cashflows. I figured i could do most of the work on them myself, my step father is a skilled handyman and carpenter, so rehab does'nt scare me too much. I want to build a nice portfolio to aquire wealth and so that i always have income because RE is a commission based business. I'm unsure what kind of metrics i should look for when looking for deals. On average what kind of cashflows do you guys look for per door on multifamilies as well as ROI's, COC, and CAP Rates?

I would like to get 200 per door a month, so 600 a month on quad if i were to live in one of the units myself.

Just wanted to see what the pro's look for when they're making their moves.

Thanks guys

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Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
10y

The equation I use is monthly rent - 30% (vac. & Maint.) - PITI = reasonable estimation of long term cash flow. I max out at 60 X monthly rent as a purchase price. The above mentioned "reasonable estimation of long term cash flow) has to be at least 12% CoC ROI when putting 20% down + some amount for closing costs.

E.G. if a property rents for 1000/month.  I will pay up to 60k for it, including any rehab needed.  I only do 15 year notes so that makes it a bit difficult as well, to find cash flow.  If I pay $12k down and $3k in closing then I need to clear $150/month in long term cash flow.

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  • Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
    10y

    The equation I use is monthly rent - 30% (vac. & Maint.) - PITI = reasonable estimation of long term cash flow. I max out at 60 X monthly rent as a purchase price. The above mentioned "reasonable estimation of long term cash flow) has to be at least 12% CoC ROI when putting 20% down + some amount for closing costs.

    E.G. if a property rents for 1000/month.  I will pay up to 60k for it, including any rehab needed.  I only do 15 year notes so that makes it a bit difficult as well, to find cash flow.  If I pay $12k down and $3k in closing then I need to clear $150/month in long term cash flow.

  • Mindy JensenPro Member
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    10y

    @Alexander Santini, The webinar on Wednesday, February 17, 2016 is something you should see. Brandon Turner, co-host of The BiggerPockets Podcast, will teach you how to find, analyze, and finance incredible small multifamily properties, as well as the dangers to be aware of before you make any offer!

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Alexander Santini:

    (1) My ultimate short term goal is to acquire 7 units in my first year, and possibly live in one of them.

    (2) As far as my long term goal is concerned, in ten years i would like to own a minimum of 75 units and scale myself as large as I possibly can. 

    (3) My strategy is to buy multi units and hold them as rentals to build up my cashflows. I figured i could do most of the work on them myself, my step father is a skilled handyman and carpenter, so rehab does'nt scare me too much.

     Without plans and goals, nothing happens.  However, being young and inexperienced, you clearly don't understand how much work you are unaware of.  Don't want to rain on  your parade, but success is not in these kinds of numbers and being too aggressive too soon with so little background, you're headed for a great disappointment IMO.

    Assuming all your acquisitions come true (1,2), you will need a team to manage the units - - heck, you'll need one full time employee to just process tenant applications, and move-in/out inspections.  Give you a big $$$ savings tip, avoid employees. WHY?  you have some homework if this is not self-evident.

    (3) should cause you to shutter - - one or two persons can not maintain 75 units (even all SFR) and it's worse if its 75 doors of MFU. When the tenant calls to say the toilet is overflowing, saying the furnace will not stay on (and its 2degres F outside), you can't reply, I'll make an appointment for this coming Friday.

    Walk before you try to run, get some real life experience.

    In the words of Theodor Roosevelt, "Walk softly and carry a big stick".

    Don't want to rain on your parade - - really and wishing you nothing but success.

  • Investor · Royal Palm Beach, FL · Member since 2013 · 162 posts · 67 votes
    10y

    J Beard has some points, but it depends on your strategy.  

    A few things I would recommend is to do one at a time.  

    1)  Find out your numbers.  Use the BP calculator :-).  
    2)  Do not buy in the ghetto because the numbers look good
    3)  Write down your screening process
     - this is your most crucial key to success and less headaches
    4)  Deliver the best rental product
      - new appliances, toilets, vanities, paint, fans, clean the A/C and exhaust vents
     - this is your second key to success and less headaches
    5)  Get a good lease
     - I can share mine

    IMHO, I think MFs are overpriced right now.  As long as the numbers work, location works and appeal works, you will be in great shape.  I'm not familiar with St. Lucie county but @Jon Huber has a rental or two up there.  

  • Malvern, PA · Member since 2016 · 25 posts · 4 votes
    10y

     Thank you for sharing, I'm playing with your system on the stack of Multi's in front of me.

  • Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Account Closed:

    @jacobsampson

    That may work in Kansas but certainly not in Westchester NY. Rents are 1k and up a unit and avergage sale price is 430k and up on a multifamily.

    Finding a deal 60x a rent price per your example (although ideal) and including rehab is a fantasy.

    To make money, you have to look at your market and sometimes appreciation is worth more than cash flow when looking at hold investments.

    Understood.  If cash flow is the goal then NY probably isn't the place to invest.  Probably good that I live in Kansas, I don't have the fortitude to invest without cash flow.

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