Brandon recently said that $200 of cashflow after expenses (including mortgage) on a house is a homerun. I am aware that different markets produce different results, but what is the minimum amount of cashflow you would accept on a potential property? I am in Ottawa, Canada and apparently downtown SFH's and duplexes should go for a minimum of $1000 after expenses. Thoughts?
The cash flow depends on a lot of factors. A $100 or $200 cash flow is a dangerously small amount when you consider the vacancy rate, unexpected repairs i.e. a broken sewer pipe underground that costs $10,000 to $30,000, or how many years will it take for your $100 per month to pay for a tenant who does not pay rent for 6 months and you even have to pay an attorney.
Sorry, but I've been investing for more than 50 years and I understand the philosophy that $100 x 10 when you own 10 homes is $1,000 profit per month, but the problem is; WE DON'T LIVE IN AN IDEAL WORLD!
The $100 per month cash flow is the small (tiny) picture. The professional investors take the amateur investment analysis many steps further by eliminating the dogs ($100, or $200 cash flow) and purchasing only properties at discounted prices where major profit (100% ROI) the day the property is purchased and by stretching out the projections to calculate what the RIO is the day escrow closes and you increase the rents and project further 1, 2, 3 and more years to see your ROI when you increase your rents every year.
If (when) you need help with the numbers, just ask how?
@Jack Orthman How?
I’m thinking that $100/month grows so that after 3 or 4 years due to rent increases that cash flow is up to $200-300.
I personally look for $300 and up per door. Unless the property is under $50K. I bought a property today for 4K and will spend $8-15K for rehab. I will net $350 a month on it for two years and then will net $500 a month after loan is paid off.
Depends on the area in regards to cashflow. C class areas might cashflow $300/door but are going to lack the opportunity for cashflow. On the other hand an A class property might cashflow $50/door but have greater opportunity for appreciation. It depends what your objectives are. However, on average I would say $100/door is a good basis.
How do you find your properties? Wholesalers, realtors.....? Do you have any recommendations for deal calculation tools? Thank!
Well it all depends on how you're defining cashflow. If you mean rent - PITI, then 200 is nowhere near enough. My calculation is rent - 10%(management) - 10%(maintenance) -8%(vacancy) -10% (capex)-PITI. With those calculations, I'm lucky to get 200/door/month. However, I don't have to worry about expenses eating up years of cashflow, because those expenses are accounted for. Yes, my reserves are conservative, but I need each rental to be able to fully support itself and pay for its own expenses.
Are you suggesting that all buy and holds should start with a wholesale flip type home? Asking because I have two homes in escrow now, total newbie, but willing to make mistakes to learn. Can’t live like I do anymore.
If you would like to, post all the numbers for the two properties you purchased and I will put the numbers in my number cruncher. Then, there are a few factors only you know because I don't know what the market is like in your area.
What did you like better about the two properties compared to others you looked at?
Total purchase price with all closing costs.
Re-sale value if you re-sold it the day escrow closed.
Property taxes, insurance, mortgage, trash, sewer fees, gardening and all other costs.
Rehab or repair costs when escrow closes.
How many years does the roof have left?
Percent you put aside for unexpected costs for sewer outside the house, plumbing, painting inside and out
Fence repairs and expected cost to remove or trim large trees.
Expected cost to sell the property
How long do you expect to keep the property
Monthly rental income when escrow is closed
How much can you raise rent the day escrow closes.
How much can you raise the rent every year.
I'm going to sound like a broken record because I say the same thing one or two times every day.
Put away all the rule-of-thumb analysis and write down this business model.
Good Investor's Creed
"I will only invest in a property when I have calculated and analyzed the investment so that I am 100% positive the money invested in the property will give me a 50% to 100% return on my money in 1 to 2 years. I will listen to the advice given to me by my broker and friends, but I will never make a decision based on their advice. I will always calculate my risks to reward. I will not allow anxiety to cause me make rushed decisions. I would rather keep my money in my pocket and wait until I find the deal I am 100% positive about rather than take even the smallest risk."
Obviously, I just made that up.
How do you make 50% to 100% on your money every year. You keep your money in your pocket until you find a property that will return to you, in 1 to 2 years, 50% to 100% of the down payment. So, if you put $40,000 down on a property you want to earn $40,000, preferably the day you close escrow because the property is already worth $40,000 more that you paid, or you want to earn $40,000 in profit within 1 to 2 years through appreciation plus cash flow (but, for single family properties I don't include appreciation in my analysis). You look at hundreds of properties and crunch the numbers 100 times on each property. Purchase at auctions, from wholesalers, make hundreds of low offers, go to real estate clubs, etc.
May I ask where you found a 4K property that you felt was worth the investment? I've been looking at low price point SFH but not feeling confident yet.. thanks!
@Eric Yevin , I was just perusing online ads and it popped up. I inquired about it and the guy who put it up lived out of state. I will mention that it is an old mobile home with a 700 square foot addition on a 1/2 acre lot. However, the lot with the improvements (well, septic, & power) is worth 11K. It wasn’t a hard decision just looking up current assessed value. He just wanted to dump it and listed it for quick sale.
I think with these threads it's important to clarify how you are calculating cash flow and if the properties would be leveraged. If not, you're going to find people posting they cash flow anywhere from $100-$600+/mo.
Personally, I shoot for $200-$250 per door depending on my ROI. If I have no money (or very little) in the deal and there's no deferred maintenance on the property I may take $100/mo. FYI, the calculation I use for for cashflow is (Gross Rent*0.75)-(PITI)-(any other expenses)
@Yazan Ayyash as has been discussed in multiple posts on BP, it really depends on your goals. And cash flow is only one component of making money in real estate. There is also principal pay down, potential appreciation, conversion of ordinary income to long term capital gains on sale. Also need to consider how much money you are tying up to get that $200 (or $300 or whatever). What are your needs and goals? What is your end game/exit plan? All these things matter. Those who simply say $xx per door or x% rent to purchase price are over simplifying. Buying real estate is a more involved purchase than most things. Good luck.
0 dollars. Depends on market. Depends what I have in the deal. What I expect the deal to produce 10, 20, 30 years from now.
When Brandon says 200/door is a home run he is talking about after all expenses accounted for PITI, cap ex, vacancy, etc. and probably on a propertyhe BRRRR'd, therefore, having little to no money in the deal. Some people would consider the returns as "infinite"
@Yazan Ayyash , I am new to real estate, I also live in the Ottawa area, I am by no means a professional on the subject, but from the research I have done I have come up with some number on SFR's and Duplex's that come very close to what you are stating. I have even found a triplex that in theory should bring in 1200$ after expenses. My only problem is I havent found enough multi-family's in Ottawa to get a true feel for it. I feel like multi-family's in Ottawa are sparse, or maybe it is just my method of locating the deal.
I want to show you how I analyze and do the calculations for investing, but I am waiting for BP to come around and allow me to post my youtube videos and give away free software that does everything for real estate investing, but at this time I am not willing to pay $340 + pay to advertise to give information away. I did contact datazapp.com a vendor where you can get email addresses and phone numbers for cents each and the company is looking into giving me $300 in credit to pay half my BP costs. Then, I will pay the other $300, or maybe I can find another company to pay the other half. As much as I would like to help I've had problems with forums before where my posts were removed and I was banned for giving too much away for free while other vendors are trying to sell services. I fully understand and try to comply.
When I calculate cash flow it is net proceeds after every expense has been taken out. Payment, Taxes, Insurance, Repairs, Management, and etc. Also, even if I personally manage the property I still account for a 10% management fee.
@Jeremy Holcomb holy, great platform. Location?
After deducting all your expenses do you calculate future cash flow with rent increases and do you calculate your ROI for every year based on rent increases and gross annual income to see when the ROI diminishes to a small amount where you need to make a choice whether or not to keep the property, or ratchet up your profits by selling and buying something with better greater ROI. It is not the best business model to buy, let the tenant pay down the mortgage and try to retire from rental income, alone.
@Jack Orthman I do not include any rent increases in calculations. I typically buy C & D type properties and rehab for section 8 tenants. I also buy properties between 40 to 60 cents on the dollar. 95% of my mortgages are paid off within 36 to 120 months with the average being less than 60 months. I always price at Section 8 top rent for the area.
Originally posted by @Chris Stubbert :
@Jeremy Holcomb holy, great platform. Location?
I buy in Florida, Georgia, New York, Indiana, & Michigan.
From BC where cashflowing is hard. With 20% down and after factoring in 5% vacancy, $50/mo for repairs and maintenance and keeping in mind all the other expenses... I've usually been cashflowing about $50/mo but an increase in strata fees and special levies has quickly eaten into that.
Most of the ROI value is coming from the equity paydown and the expected appreciation although we are hitting a bit of a bump now with the stress test. That being said rents have been going up despite the price drops so probably a good time to pick up more
Where do you purchase property!?
I purchase properties in Florida, Georgia, Upstate New York, Indiana, & Michigan
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