Whats your Cashflow Rule?

Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes

Hi all,

Just had a quick question on what everyone uses as a rule of thumb for rental cashflow?

just to make it simple... I'm talking about financed (20-25% down) 2-3 bedroom houses/condos that are in the 100-150k Range

What kind of cashflow after mortgage, interest, insurance, HOA fees, vacancy, repairs, etc etc. are you looking at per month?

$100 a door? $100 a person?

I know @Brandon Turner wants $100 a door, but after doing a lot of online browsing I see a lot of people requiring and being successful at hitting $500 a door on 100k houses.

Just taking a poll to see where I want to place myself

Thanks!

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Jacob Pereira

Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes

10y

I have to disagree with most of the people posting here so far. Benchmarking is a useful metric to see whether your assets are performing, and comparing your numbers to those of others is a good way to see whether your money would be better invested elsewhere. It's true that individual circumstances vary, and to do a full analysis you should include things such as appreciation, tax benefits, self-labor costs, etc. but I do have a quick rule of thumb to use as a first step:

The stock market historically appreciates over time at around 7% annually. So if I can't get a cash-on-cash return of a MINIMUM of 9% (the extra 2% for the extra effort vs just buying an ETF), I know that it's not worth my time to do a deeper analysis, barring unusual circumstances. And I know people will argue that the power of leverage, inflation, mortgage paydown, tax benefits, etc. make it still worthwhile, but for me there's too much work/uncertainty in RE to bank on those secondary income metrics.

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George P.
Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
10y
why would you try to compare yourself to the rest of us? do what makes you feel comfortable regardless what brandon gets.
4 Reply
Flavio Zanetti
Investor · Andover, MA · Member since 2015 · 269 posts · 67 votes
10y
Originally posted by @George P.:

why would you try to compare yourself to the rest of us? do what makes you feel comfortable regardless what brandon gets.
100% agree! Each market will have its particular details and intricacies!
0 Reply
Jay J.
., OH · Member since 2015 · 361 posts · 127 votes
10y
Hey @David Zheng !
I've often wondered the same thing.. But if you think about it, you can change what you make on a property (kind of) by modifying the amount of money you put down and how much you finance.
For (extreme) example to show the point;
lets assume, investor wants to buy $100k house, has $50k cash and can get a loan for $100k (5%/30yr) if wanted, and the house would rent for $850
Option 1: Buy with minimum down (5% to make it easy)
put $5k down, finance $95k .. Mortgage is approx $500, leaving just over $350 for all other expenses, plus any profit for you. With that high of a debt on the house, you wouldn't cash flow. But in 30 yrs, you'll own it.
Option 2: Put it all down
put all $50k down, finance $50k.. mortgage is approx $260, leaving approx $600 for all expenses. This would most likely leave a couple hundred at the end of the month for you. You would still own this in 30 yrs too.
So, by looking at the extreme examples, you'll probably notice that a lot depends on how much cash you have, how much you're willing to part with, and what your end goals are..
My 2 cents, do whats comfortable. If you want/need cashflow now, put more down. If you're playing long ball, maybe cashflow $50, but pay down the mortgage..
..its all in your approach and goals..
1 Reply
David Zheng
OP
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
10y
well this post was more opinion based rather than a universal rule of thumb...haha
0 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
10y
The only people getting $500/door on $100k houses are those who are buying all or mostly cash. No one financing 75% is getting that when all other factors are entered into the equation.
My personal floor is $200 per unit on SFHs that I self-manage. If I can't clear at least that much per month I wouldn't want to be bothered. You might live somewhere that makes that number difficult, or easy. You need to decide what you have to offer, what your market has to offer, and how hard you're willing to work. I make good returns on my units but I bust *** for them, too. Some people would rather have 10 $100/door units and do nothing, so it really depends on you.
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David Zheng
OP
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
10y
@JD Martin that's the kind of answer I like to see haha

Personally my first 2x 100k 2b/1bath condos that I put 30% down each are cashflowing 450-475 a month after all expenses.
but I feel like I was just spoiled from the get go and now even $200-300 cashflow properties seem low....makes me want to ask the community for their own thresholds to hopefully ground me into reality haha.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
You're asking us, in REI terms, how much we would be willing to set as a goal for gas millage on our cars.
Different cars bought for different reasons = different gas millages accepted
Different hold markets = different cash flows accepted
0 Reply
Rafael Norat
Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
10y
Man.. I would love $500 per door at 100k homes with finance. I say it depends on what's standard in your area. Ask enough local investors and you'll get a good average. My area is about $150/door with financing assuming your vacancy maintenance management cap x costs.
1 Reply
Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
10y
I have to disagree with most of the people posting here so far. Benchmarking is a useful metric to see whether your assets are performing, and comparing your numbers to those of others is a good way to see whether your money would be better invested elsewhere. It's true that individual circumstances vary, and to do a full analysis you should include things such as appreciation, tax benefits, self-labor costs, etc. but I do have a quick rule of thumb to use as a first step:
The stock market historically appreciates over time at around 7% annually. So if I can't get a cash-on-cash return of a MINIMUM of 9% (the extra 2% for the extra effort vs just buying an ETF), I know that it's not worth my time to do a deeper analysis, barring unusual circumstances. And I know people will argue that the power of leverage, inflation, mortgage paydown, tax benefits, etc. make it still worthwhile, but for me there's too much work/uncertainty in RE to bank on those secondary income metrics.
5 Reply
Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
10y
As others have said each market is different.
In our market in Connecticut, to find a deal that works for the BRRRR strategy is not easy and the work involved in getting the property rented and refinanced isn't a walk in the park either. $100 a door isn't really worth it for me personally given all the work it takes.
2 Reply
Paul Ewing
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
10y
Personally I look for $150 to $200 a door not counting 10% for property management even though I self manage. I am also looking for above 15% ROI so that sort of balances out the leveraged vs paid in full question. If I can get both of those I am happy however I end up buying it.
3 Reply
Lauren H.
Investor · Colorado Springs, CO · Member since 2014 · 77 posts · 54 votes
10y
Based on our goals we aim for about a 2:1 income to expense ratio. In theory, I could make as little as $100 per door if my total expenses (not including CAPEX) were only $50 per month. In reality, the market has been good here in Colorado and we are getting from 2.5-3:1 on our two fourplexes. Having large margins will help us one day weather a storm of vacancy or lower rental rates.
0 Reply
Mark Tomes
Davisburg, MI · Member since 2015 · 26 posts · 10 votes
10y
I just finished my first BRRRR and here are my numbers. Paid 60,500 out of my HELOC, put about 12k (cash) including some part time labor, a lot of the work myself (about 20hrs/week after work and on weekends) and holding costs. Refinanced with delayed financing in May and recouped about 60k (70% appraised value) at about 4.5% 30yrs. I hired a property management co, it is rented out at $1150/month and after all my expenses I will bank about 580/month. Of course I know that isn't my net, if i factor 5% vacancy, 5% repairs and 10% cap ex I would net about 338/month. I found this on the MLS in December, I can't find anything else right now in my market to save my life!
1 Reply
Sam Valme
Rental Property Investor · Arlington, VA · Member since 2015 · 160 posts · 53 votes
10y
Imho I think @Jacob Pereira follows the closest guidance I provide to my clients. Everything is relative. $100 to me 10 years ago meant a LOT more then it does today. But to someone else $100 could be food for their family for a week today. With that you have to set your standards personally as compared to your own goals. What is your personal freedom number? Is it $5000/month in cashflow? Then at $100 a door you need 50 rentals. At $500 a door you need 10.
With that knowledge $100/door might be possible in my city but if know I can go 2 hours south and get $500/door. That could potentially be 1/5 of the time (generally speaking) for me to hit financial independence. From there I have a decision to make. Do I stay local and grind to 50 doors or do I set up my schedule to make the commute to and from my investing market possible.
My point is you have to set goals. Run the numbers to see where you want to be. Then analyze the market to see where will get you there the fastest. The dollar amount per door is irrelevant compared to your overall why for being in the business. If its financial independence then just replace the numbers above with your own ;) .
Good Luck!
4 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
10y
I look for immediate cash flow based on a rough figure of expenses. Obviously going forward 30 years it is impossible to know expenses. A base would be $100 + per door but I also target properties having the ability to increase rental income short term.
The majority of investors claiming high cash flow from day one can do so because they are low balling long term expenses or using the smoke and mirror tactic of high down payment or even full cash purchase.
What novice investors fail to understand in paying down the mortgage is that it has zero effect on the positive cash flow from the property. The mystery cash flow is actually due to return on equity and is not positive cash flow at all on the property.
True cash flow is calculated based on 100% financing to insure accurate numbers. If you ignore the value of "dead money" you are a delusional investors.
0 Reply
Chris Eaker
Buy and Hold Investor · Knoxville, TN · Member since 2013 · 450 posts · 270 votes
10y
I have a spreadsheet where I put in all my numbers on a potential deal. It calculates cash flow per door and cash on cash return. The cells for those numbers get colored based on the answers (see table below). I shoot for both cells being green. If one or both are yellow, I may pass, but that depends on other factors, such as if rents are below market. But if one or both are red, then I automatically pass.

Cash Flow CoC Return
Green $200 >12%
Yellow $150-200 10-12%
Red <$150 <10%
3 Reply
Leland Barrow
Investor · San Marcos, TX · Member since 2015 · 272 posts · 360 votes
10y
It depends on how much cash you have into it. With zero cash into the deal "creative financing" a $100 or even less per door is more than reasonable. Your risk is extremely mitigated and you can walk away with nothing lost out of pocket. If you pay $100k cash for an investment property a $100 is not near enough.
0 Cash: $100 after all expenses
100K: $650 after all expenses and the house needs to at least appreciate with inflation
You can get around 8% if you leave your money in an index fund. Putting large amounts of money into assets that lack diversification increases your risk. You should require a higher than 8% return. Cash flow is only an indicator of a healthy asset, using it for comparison purposes does not work unless you are comparing apples to apples. Cash on Cash is a better benchmark.
0 Reply
David Zheng
OP
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
10y
all great answers! Thank you guys!

definitely learned a lot more about what risk tolerances and goals other people have!
0 Reply
Jassem A.
Investor · PA · Member since 2013 · 1k+ posts · 602 votes
10y
I usually aim for 2-3 times rent versus the PITI payment. So if PITI is 400/mo, I'd like to rent for at least 800/mo but 1200/mo would be more ideal.
3 Reply
Anthony Angotti
Real Estate Agent · Pittsburgh, PA · Member since 2015 · 1k+ posts · 846 votes
10y
$500 dollars a door is possible in some places, but often times I question if those people consider CapEx in their cash flow calculations. Always factor in CapEx and things that you need to do up front.
I would prefer $200 minimum when analyzing property, but every market is different.
0 Reply
Ryan Van Fleet
Laurel, MD · Member since 2016 · 50 posts · 19 votes
10y
Can I ask a newbie question? What is meant by $$$ per door? Per bedroom? Per rentable unit? Thx Ryan
0 Reply
Andrew Medlin
Rental Property Investor · Waxhaw, NC · Member since 2014 · 5 posts · 0 votes
10y
For those of you who factor in CapEx to your cashflow calculation, how exactly to you do it? Do you use a percentage of your rent as an estimate or percentage of the property value?
0 Reply
Steven Anderson
Investor · Spring, TX · Member since 2015 · 126 posts · 38 votes
10y
Ryan Van Fleet The number of doors is the number of units available to rent. For a duplex there are two doors. A 30 unit multi family complex has 30 doors. A SFR has just 1 door.
2 Reply
Ryan Van Fleet
Laurel, MD · Member since 2016 · 50 posts · 19 votes
10y
@Steven Anderson Thank you. Trying to soak up as much as I can
0 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
10y
I like the 50% rent rule
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	Cash Flow	CoC Return
Green	$200	>12%
Yellow	$150-200	10-12%
Red	<$150	<10%