$100 dollars a door?!?
Rental Property Investor · Racine, WI · Member since 2012 · 27 posts · 21 votes
I wanted to see what everyone's thoughts were as far as how much per door you look to get on an investment.
Do you look to make at least $100 dollars a door after all is paid (Mortgage, Taxes, Insurance, Property Management, Repair %, Vacancy %, etc..) ?
When I analyse a potential property I start out assuming 50% expenses and debt repayment based on 100% financing on a 30 year. If those rough numbers do not show a minimum $100/door I don't bother looking any farther. If you do not base your calculations on 100% financing 30 year then you are not calculating the cash flow produced by the property itself. You can not include cash flow purchased with equity, as @Michael Plante includes, since it is NOT produced by the property.
Always keep in mind when investing in income properties that every property has two separate income streams. On is the property itself the other is your own cash sitting as dead equity. Two distinct income sources that must be separated to be able to assess the true value of a property. If you do not separate them then any fool can throw as much cash as needed to "polish a turd".
what is the 1% rule?
Purchase price shouldn't be more than 100x rent. (conversly, rent should be at least 1% of purchase price)
i.e., $100k home rents for $1000/month = 1% rule. If it rents for $1200, it's "better than 1%". If it rents for $800, it's "worse than 1%".
I use that rule of thumb all the time. I bought a $6m property that I'd expect at least $60k/month of rent roll. It's actually $120k/month. so 2% rule. And this is near city center in Houston TX with plenty of land and appreciation.
I try not to be a strict rule of thumb buyer but bottom line, unless it's an A or NNN deal, a property will almost never cash flow if it isn't a 1% deal. Unless you're so heavy cash into the deal that your returns are crap -- which is just another piled on negative.
Thanks @cody L.
Is the 1% total rent for multifamily or average per unit?
In other words I'm looking at a 4plex which rents at 800/unit. Is a good purchase price $80,000 (1%/unit) or $320,000 (1% of total rent from 4 doors)
ok 80k is a much better price but which formula are you referring to
Obviously per unit. If I buy a 100 unit building that averages $800/unit/month I’d pay, at most, $80k/unit (8,000,000). Obviously I wouldn’t need to pay $80k total for the whole place.
This is just a general rule of thumb I’ve found to be the max you can pay and still cash flow with any decent leverage
I'm new to this game so nothing is "obvious" to me, thats why I ask questions. And why my question was based around a 4 plex, NOT a 100 unit building. But thanks for stepping off your high horse to answer, I know it must have been tough for you...
Relax. I was giving an extreme example to explain why it would be per door. it holds true from a single family to 1000...+ units.
I have no horse and am not presently high
Best of luck man
When I analyse a potential property I start out assuming 50% expenses and debt repayment based on 100% financing on a 30 year. If those rough numbers do not show a minimum $100/door I don't bother looking any farther. If you do not base your calculations on 100% financing 30 year then you are not calculating the cash flow produced by the property itself. You can not include cash flow purchased with equity, as @Michael Plante includes, since it is NOT produced by the property.
Always keep in mind when investing in income properties that every property has two separate income streams. On is the property itself the other is your own cash sitting as dead equity. Two distinct income sources that must be separated to be able to assess the true value of a property. If you do not separate them then any fool can throw as much cash as needed to "polish a turd".
Could you explain further?