100 dollars per door

15 Replies

I've listened to most of the podcasts. And I've noticed that as a potential buy and hold investor, the podcasts indicate that you want to have at minimum $100 cash flowing per door.
Now i live in CT and this number doesn't make sense. I have friends, who without trying have 2 one-family homes cash flowing enough to cover the entire cost of a 2012 bmw. The cash flow covers the car payments, insurance, gas and maintenance. And he lives in new haven, CT, and that city hikes your auto insurance premiums substantially. He didn't give me a number, but I'm guessing he's cash flowing like $800/month at least.

Is he full of it, or is CT just a different beast? Because i do note that most places in the US have homes selling for 100k according to podcasts, but most homes in CT are least 1.5-3 times that number easily.

What am i missing

It could depend on how he gets the houses, how much he puts down, or even what niche he is targeting.
For example my vacation properties cash flow much better than normal but I also run a risk of a higher vacancy rate.

@Luis Saez  Did he pay all cash? Even then I suspect he is probably unknowingly borrowing from what should be his maintenance fund. Many people think that once you pay the mortgage the rest is available cash flow. Then they get hit with that big bill for repairs, after a long eviction with no rent coming in, and wonder how they will pay it. 

$100 per door, with financing, is considered decent. That includes all costs, including putting money aside for repairs and normal maintenance, vacancies, insurance, taxes, etc.

Some parts of the country aren't good for rentals. I am no expert but in the area I am in you can do what you mentioned -2 houses with around $800 monthly cash flow total.

If your goal is cashflow in SFR you may need to find another area.

The $100 per door, I usually here is more of a MFR quote.

@Luis Saez Cash flow is achievable in New Haven and Hartford counties in Connecticut, but SFR is not usually the way to make this happen. it's possible, but definitely not typical.

As you get into 2 families and 3 families & higher there are definitely cash flow opportunities for sure. To make $200/door in the Hartford area with multi's specifically is definitely possible.

SFR's are to tough to make the numbers work in most towns and cities around here. Unless you want to buy in super undesirable areas and even then its tough.

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I paid cash for one of my properties that if I didn't include all the "real" costs, I'd be cash flowing $830/month.  But you really can't count all that.  You have to put away money for the extra things and not even think about them as part of your cash flow.

I kind of hate the cashflow-per-door metric. $100 a month on a 50 unit complex that is in good shape, required no capital and will appreciate is a freaking steal! $100 a month on a single family residence (SFR) where I put 25K down on a 100K house would make me pound my head against the table.

There is also a big difference between cashflow per month, and actual cashflow.  If I ignore vacancy, repairs, leasing fees, etc., it's easy to generate huge cashflow and buy expensive toys and get a BMW.  But when I add up the reserves that I should have to cover these expenses, that cashflow drops from a 2012 BMW to a 1970's VW Bus.

@Luis Saez  

I read articles that New Haven has some of the lowest vacancy rates in the country. As in any market, it depends on how much the property was purchased for. The lower the purchase price the higher cash flow you will receive and vise versa.

As @Michael Noto  said, 2-3 families properties in our state tend to cash flow more

Friends, help me understand something... re $100 per door theory:

Rents

less PITI

less fixed incidentals for specific SFR (IF included: security monitoring; utilities; etc.)

less what else? Estimates for vacancy? repairs?

Obviously, with a SFR 1 month vacant per year is 8.33% (1/12). Repairs could be anything (15% ?) or again, arbitrarily tied to one month's rent (8.33%).

If one own's multiple rentals and has really good accounting, then you could divide all your other expenses and allocate by square footage or individual rent/total rent of all SFRs.

The list could be endless (thus maddening)...

If you could assist me on this, I'd appreciate it.

Definitely seems they are taking every penny out and not building cash reserves or a maintenance fund!

I also wonder if they are living large and will be shocked by a huge tax bill.  The better we do the more April 15th hurts.

I use $100/door for SFR and duplexes as a minimum to put an offer on a property. Our actual is trending closer to $170/door, with a wide range year to year and property to property. We have put a good chunk of that cash flow into capital improvements in hopes of being able to start siphoning off cash to help fund college tuition. I feel my market is tougher than many, so think investors in better markets can easily double that.

@John F. , we have income less PITI, less lawn care on the duplexes, less routine maintenance (5%), less turnover costs (7%), and misc items like education (1%). Hope this adds some clarity.

Thanks for all the great input BP. Some thoughts came to mind as i read your replies. One thing is that his rates in the financing mustve been good bc he did mention that he used to live in these homes. So he didn't get a loan for an investor, he got one as an owner occupant, the other thing that now makes much more sense was that when I asked him of repairs and future costs, he made it seem as though it was not a big deal, meaning i don't believe he's saving for some future expense thatll hurt him.

That said. I know we should have money for huge expenses like a roof. But for how long should we be putting aside this money? Would it be good enough to build up a large reserve per property and then stop saving for that reserve and start paying down the principle on the loan? bc the way im seeing it, some of these loans are crazy. I've seen examples ok loans where one borrows 100k, and after 30yrs, 200k is paid. Would it not be more favorable to pay off that principal because that 100k in interest is eating into your potential income? Provided you don't have an early payment penalty

Thanks for all the great input BP. Some thoughts came to mind as i read your replies. One thing is that his rates in the financing mustve been good bc he did mention that he used to live in these homes. So he didn't get a loan for an investor, he got one as an owner occupant, the other thing that now makes much more sense was that when I asked him of repairs and future costs, he made it seem as though it was not a big deal, meaning i don't believe he's saving for some future expense thatll hurt him.

That said. I know we should have money for huge expenses like a roof. But for how long should we be putting aside this money? Would it be good enough to build up a large reserve per property and then stop saving for that reserve and start paying down the principle on the loan? bc the way im seeing it, some of these loans are crazy. I've seen examples ok loans where one borrows 100k, and after 30yrs, 200k is paid. Would it not be more favorable to pay off that principal because that 100k in interest is eating into your potential income? Provided you don't have an early payment penalty. Not to mention that a mortgage, excluding taxes and insurance, can be over $1k/month easily here. Meaning once the debt service is done, your $100/door should dramatically increase. Which is why I'd want the loan paid yesterday.

Originally posted by @John F. :
Friends, help me understand something... re $100 per door theory:
Rents

less PITI

less fixed incidentals for specific SFR (IF included: security monitoring; utilities; etc.)

less what else? Estimates for vacancy? repairs?

Obviously, with a SFR 1 month vacant per year is 8.33% (1/12). Repairs could be anything (15% ?) or again, arbitrarily tied to one month's rent (8.33%).

If one own's multiple rentals and has really good accounting, then you could divide all your other expenses and allocate by square footage or individual rent/total rent of all SFRs.

The list could be endless (thus maddening)...

If you could assist me on this, I'd appreciate it.

Your arbitrary numbers don't have to be. You should have operating numbers (actuals and budget) and capital reserve numbers. Regarding the '$100 rule of thumb'... it's not a good one, in my opinion. When your 23 year old roof is leaking, the 23 year old A/C fails, your 23 year old septic tank fails, 13 year old hot water tank blows chow, and the 14 year old stove circuit board goes out... all in a 6 week time frame, you should be able to dip into your (well stocked) capital reserve account. If you plan correctly, it will fund all of these items, because properties held for the long term will (on average) require these capital expenses over time.

Upshot: look at your capital expenses (long life items you capitalize on taxes) and build a replacement plan. Calculate EOL (End of Life) and replacement expense, then fund monthly. That eliminates surprises... most of the time. On new acquisitions, do the calculation and fund based on useful life (e.g. if stove is 5 years old, and has a 10 year life, then include 50% of replacement cost in the reserve escrow). Try again... @John F.

I don't think you should ever stop saving for emergencies. I think it's best to just have a separate account for maintenance & repairs. As you build a portfolio of properties, you just continue to throw 5%-10% of the revenue from each property into that one account. Just keep separate accounting to show which properties are contributing and drawing the most. When you buy that 100 unit complex down the line and the boiler goes out in the middle of winter in your first year of ownership, you have that $50k-60k to take care of it. (I have no idea what it would cost to fix one of those boilers, I just pulled that figure out of the air).

As for paying off loans. I wouldn't look at that option until I'm approaching retirement age. Based on your photo, I don't think that's your case. If you feel that you have "enough" capital in your maintenance & repairs account, start reinvesting future revenues into revitalizing your existing properties.

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