How high is your ROI on your rentals?

Question

Just wondering what everyone shoots for as far as ROI or cash flow on their rental properties, with and without financing.

My target properties are 2-3 bedroom SFRs in Central Florida. They're $40,000-$80,000 homes and normally rent anywhere from $650-$900 per month depending on size and location.

Matthew B. · Answer

Here's an example of a deal I'm working on now:

REO 3/2 that needs a lot of work.
	$36,000 purchase price
	$17,500 in rehab
	$1,000 property tax per year
	$1,000 insurance per year
	$1,000 maintenance per year
	(These are rough estimates)
	$800 per month rent
	$9,600 gross rent per year
	$6,600 net rent
	
	$6,600/$53,500 = 12.3%
	
	We've found that the difference in rent between our homes and the more expensive homes is not justified by the higher rent. So we stick to the cheaper properties. They're by no means the slums, just clean, affordable housing!

Matthew B. · Answer

Good points, Tom N. You're more thorough than most. I'm currently studying for the GMAT, so cut me some slack!

We are lucky in that we have extremely low vacancy. We also do the repairs and property management ourselves, which helps control costs.

Paul Choate · Answer

I shoot for $18,000 total per unit cost (purchase plus rehab) and my rents are $500 - $600 per month. I use cash. That is my average over 15 units. I am in central OK. I am in a bit of a market upswing with the oil boom. This area tends to fluctuate with the oil market.

My ROI goes like this:

$550 rent

-$20 taxes

-$40 insurance

-$55 vacancy

-$50 management fee

-$100 repairs

total expenses $265

So, $550-$265= $285 * 12= $3420/$18,000= 19% ROI

I am an attorney and use my office so that cuts down on other expenses.

My properties are very management intensive and they do not appreciate much. All I can count on is the cash flow but it is pretty good while I am able to do the work.

Thomas S. · Answer

I estimate 10% of rent for repairs, no property management and 1 month vacant a year. I keep a soft floor at 12% return, only exceptions being newer/well updated homes in nicer areas where I will dip as low as 8%. I currently am sitting on 8 single families ranging from 9.5% to 20%, focused around 12-13%.

Rob K. · Answer

What I do is calculate using the numbers that I know, or almost know. I take the costs that I know - purchase price, taxes, and insurance. I can then get a close estimate on repairs and rent. Using these numbers I can calculate a cash on cash return. I look for 25%. Once you factor in vacancy and repairs (unknown numbers), the return will come down some. These are in B minus to C neighborhoods in Michigan, so the returns are huge.

Tom A. · Answer

Good luck on your GMAT, @Matthew B.

Don Konipol · Answer

I invest in high end urban high rise condos only.  Cap rates 5.5 - 8.5.

Manuel Gonzalez · Answer

one of my examples

27k purchase

8k rehab

795 rent/9543

Pm 1350

Property tax 643

Fire insurance 400 rounded up its  high 300

No windstorm

Misc repair 1000  really high but I'm not counting roof I did last year I've had property since 09

9543-3397=6143÷35000=17.5

I got one where I paid 12 k put 12 into it and section 8 at 820  a month it was termite infested and everything else but I was young did most the work my self so it turned out OK only problem is that they are not appreciating as much as I would imagine but I've had that one since 06 same tenants can't complain

Michael Power · Answer

We are cash buyers so our ROI is obviously lower.  We also only keep the very newest properties, (sometimes brand new).  Those are 6%-8% ROI after everything. We could improve that somewhat, (by 2%), if we had 50% LTV debt and bought twice as many properties.  But we prefer the life-style with no debt, decent cash-flow and very long term tenants.  This gives us very peaceful nights. We sometimes forget about the properties we have.

Mike P.