How much should you typically aim to Cashflow per property? Why?

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Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
6y

I think there are always other variables that come into play when discussing cash flow.  For example, I look for at least $100/door but on a 15 year note and in a C+ or better neighborhood.

Further, everyone calculates cash flow differently. I calculate cash flow as gross rent - 30%(vacancy, maint, and capex) - PITI = true long term cash flow.

As an example $1000 (rent) - $300 (vac, maint, and capex) - $600 (principal, interest, taxes, and insurance) = true long term cash flow.  And remember the principal and interest is based on a 15 year note.

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  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    6y

    The 50% rule works well.  It allows enough cushion for when it rains hard on the portfolio.

    0Reply
  • Fred Cannon
    Rental Property Investor · St Augustine, FL · Member since 2019 · 265 posts · 279 votes
    6y

    @Matt Burr no such thing as a triplex for $75K in Florida Can’t compete with a deal like that.

    0Reply
  • Matt BurrPro Member
    Real Estate Investor · Chelsea, MI · Member since 2017 · 56 posts · 13 votes
    6y

    @Fred Cannon that is why I wanted to gather some opinions on how people perceived some of the rules of thumb for cash flow. The horse has been pretty well beaten to death but the out come is... it all depends. 

    For low cost markets like I am in you are not likely to see small MFH buildings put out $1000+ per month but I also don't pay $300,000+ so it makes sense the rules probably waiver some. Neither is right or wrong there are some nice advantages to both sides. I would love the simplicity of only needing to buy one building a year to match the same cash flow that I get with three buildings a year. The flip side is a vacant unit here and there doesn't impact me much at all vs if I only have a few large cash flow buildings I will feel it soon as something is vacant. 

    There several other factors that have all been talked about many times in this chain as well. Boiled down you do what works for you. Check your facts and numbers along the way but if you are happy with the deal then it "is a good deal" doesn't matter who else is making $1,000,000 a month.

    0Reply
  • Kiera Underwood
    Real Estate Agent · Oklahoma City, OK · Member since 2019 · 956 posts · 600 votes
    6y
    Originally posted by @Phil Denton:

    @Kiera Underwood Does your calculation of 5-10%/mo for maintenance cover both short term maintenance and capital repair/improvements?

    It does not. 5-10% is ongoing/short term maintenance. I let people factor their own CAPEX budgets based on the ages of major mechanicals and the tier of replacement they choose.

    0Reply
  • Zachary Collins
    Denver, CO · Member since 2017 · 33 posts · 15 votes
    6y

    @Dan Heuschele the point you make about it being a part time job and being paid less when the cash flow is less is exactly what I was thinking. Glad someone else is thinking like this

    0Reply
  • Alma Bagaoisan
    Member since 2019 · 66 posts · 15 votes
    6y

    @Matthew McNeil

    That’s still great cf. can I ask where and how much. Thanks

    0Reply
  • Jennifer Rysdam
    Rental Property Investor · Cleveland, MN · Member since 2017 · 518 posts · 354 votes
    6y

    Here's what Brandon Turner had to say:


    https://www.youtube.com/watch?v=hufXoUBiTY0

    0Reply
  • Nadiyah MalbonBusiness Member
    Realtor · NJ · Member since 2020 · 104 posts · 31 votes
    6y

    @Dontrea Riser I’m getting approximately $375-$450 per door in the Michigan market.

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  • Account Closed
    Investor · United States · Member since 2018 · 565 posts · 356 votes
    6y
    Originally posted by @Dontrea Riser:

    Open to answers/replies from ANY market

    For multifamily $200-$300 per unit per month.

    For Airbnb $1,000/month.

    Why: because this is usually what it takes for the investment to be worth it in terms of opportunity cost. And if you can't get enough revenue then you also can't cover the operating expenses to keep the thing running. 

    0Reply
  • Stephen David Smith Jr.Business Member
    Real Estate Broker · Sarasota, FL · Member since 2016 · 157 posts · 65 votes
    6y

    Good Morning,

    For a quick analysis before digging I would look at the 1% rule for residential properties:

    (I hope this is helpful)

    Monthly Rental Income ≥ One Percent of Purchase Price

    So according to the rule, a property with a total investment (price + upfront repairs) of $200,000 should rent for $2,000/month or more in order to be a good investment. If the rent is only $1,500/month, the $200,000 price would not meet the rule. Or if you had to pay $250,000 for a property that rents for $2,000, it would not meet the rule either.

    You can also use the reverse of the rule:

    100 x Monthly Rent = Maximum Purchase Price

    Let’s say you know a property rents for $1,500/month. You could quickly calculate that you can not pay any more than $150,000 (100 x $1,500). So, if you saw a property listed for $160,000, you would know you’re getting closer to a good investment. Or if it was listed for $250,000, you wouldn’t have to waste your time on it.

    But the one percent rule is not the final word on a property. It’s just the beginning of the story. And it does not apply to all properties or all situations. So, let’s look at when to use the one percent rule and when not to.

    0Reply
  • James Hamling
    Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    6y

    To best answer the subject question it's very important that a person first answers the question "What Is Cash-Flow?". Seems simple enough although my experience is 95% of answers are incorrect (well, the $ I get above and beyond my hard costs). 

    "Cash-Flow" is the $ remaining as a net profit AFTER expense allocation, INCLUDING those budgeted and deferred expenses. #1 mistake I experience people making is not allocating for deferred expenses. If you purchase a property that has a 10yr old roof it is very different than a 2yr old roof. Properties have items that require maintenance and replacement on a regularized schedule very similar to a car. The expense to own and drive a car is more than just insurance and fuel, there is oil changes, tires, wiper replacements and so on. 

    So to correctly calculate cash-flow a person must first correctly assess deferred maintenance. Review all major items and components (roofs, windows, HVAC, water heater, flooring, etc) and than allocate remaining life span vs expected life span. Than we take a market rate for such item replacement (I also allocate a rate for annual inflation so I can best project future expense) and than we have a whole dollar amount required for these replacements and dates needed for full funding by. Now we factor this into our expense allocation/ budget. 

    Now a person can accurately view what IS the net 0 point on a property. 

    Going 1 step further, it's best to now allocate for a vacancy rate, property management and all those other expenses. 

    Last step is placing a cash-flow/ ROI rate required. I never view this universally, a C class property requires much more inputs and risk so I require a higher rate of return vs a B+ class property that will have considerably lower risk and inputs.

    Last factor I look at is what I call Price Vectoring, it is kind of projecting future market value of property but it uses current and market numbers to do so (the vectoring portion). Vector means direction and magnitude, I view that, is it a market with strong significant appreciation, stagnation, or wavering on decline potential? I will happily accept a 0 cash-flow on a property thats poised to have 20% appreciation in the next 12-18 months, and a 10% cash-flow is horrible on a property with potential of negative appreciation in a declining market. 

    Lastly, I never look at cash-flow as a whole dollar amount, it is always as a %, whole dollars will "lie". ROI easier said is risk vs reward, the only way to measure such is via % scale. That said, yes I do see a whole dollar amount and yes it does have effect but I always fight off those thoughts because a person MUST obey the math, must, math never lies and emotions will all but always.

    So, thats my 2-cents on this, a great question that raises a great point that many fail at and later suffer from. And yes, Excel is my "best friend" as it makes all this an easy emotion-free process of accuracy. 

    2Reply
  • Kalen Jordan
    Austin · Member since 2015 · 149 posts · 80 votes
    6y

    A lot of turnkey providers advertise properties in the 12% to 15% CoC range in markets like Cleveland, KC, Indy, etc. That's factoring in maintenance, vacancy, management, and capes in many cases.

    Would you say that is realistic?

    0Reply
  • Karen F.
    Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    We look for net 20% of purchase price (or current value)/yr.  In other words, if the building cost 150K to buy and get up and running, we're looking for net income of 30K/yr on it.  Now, if you have it financed, you have to take that into consideration.  The terms of your loan would affect your return on investment.  We're not considering increase in property value.

    You can't really talk how much per door, because there's a big difference between $100/door on a door that costs 10K, or a door that costs a million.

    0Reply
  • Joe P.
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    6y

    Yep, so Brandon likes minimum of 100 p/d on duplexes and 200 p/d on SFH.

    But the COCR is also important, exactly as he's indicated.

    I'm working on a BRRRR SFH deal that if all facets (purchase, rehab, holding, tenancy, refinancing) go as planned, I will have INFINITE COCR because of a cash out refi, and my cash flow will be about $100 per month. Some people aren't interested in that because the CF is too low. But I'll have a tenant in essentially a brand new unit paying down my equity and stuffing a few bucks in my pocket, which after refinancing, cost me nothing (or even gave me cash).

    That's why every deal should be evaluated on its own merit, not compared to others. Generally you want positive cash flow on conservative evaluations, be able to build equity, and do so in a well-appreciating, safe neighborhood. Not everyone can hit all of those on a deal.

    1Reply
  • Pete Winslow
    Rental Property Investor · Scottsdale, AZ · Member since 2019 · 23 posts · 21 votes
    6y

    The most important number I look at is my Cash on Cash ROI. The cashflow per door of a house I put $100K into and one that I did not leave any money in the deal could be the exact same, but I would rather get my money out of the deal to work on another one ASAP.

    That being said, I generally look for a minimum of $100+ per door with my conservative expense estimates.  I then work with rockstars who are going to help me exceed my projections and raise that cashflow number by lowering my expenses.  

    0Reply
  • Stephanie Simmons
    Flipper/Rehabber · Lakeland, FL · Member since 2019 · 131 posts · 91 votes
    6y

    @Dontrea Riser

    I do fair market value divided by 120 payments. If it won’t rent for that I sell. If market rent is at or above that I rent. My father in law used that and it has always worked for me.

    1Reply
  • Scott Isbister
    Member since 2019 · 22 posts · 9 votes
    6y

    @Jacob Sampson

    what market(s) can you drive that type of cash flow on a 15 year note in C+ neighborhoods on a SFR?

    0Reply
  • Matthew McNeil
    Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
    6y
    Originally posted by @Alma Bagaoisan:

    @Matthew McNeil

    That’s still great cf. can I ask where and how much. Thanks

    Boise/Meridian Idaho

    0Reply
  • Derek Smith
    Rental Property Investor · Waco, TX · Member since 2017 · 28 posts · 21 votes
    6y

    @Juan Erick Rico Avalos wouldn't that be 12% COC...?

    1Reply
  • Derek Smith
    Rental Property Investor · Waco, TX · Member since 2017 · 28 posts · 21 votes
    6y

    @Juan Erick Rico Avalos. ... 12% COC

    0Reply
  • Dan L.
    Rental Property Investor · Albany, NY · Member since 2019 · 125 posts · 47 votes
    6y

    The most common answer has been $100 per door. However, several factors come into play…

    • Cash on cash: If I invested $100,000 of my own money, and I was only getting $100 per door, so $1,200 per year, and saw only a 1.2% cash on cash return, that would not be acceptable! So cash-on-cash is important.
    • Similarly, the value of the house is important. Let's say I only invested $5,000 of my own money into a $1,000,000 house. $100 a month would not do it for me, because of the risk of problems with the house (maintenance headaches, vacancy fears, etc). However, obviously to get a million dollar house for only $5,000 would be pretty cool, so I might still do that deal for appreciation or some other reason, but not for cash flow.
    • How much work is involved! If the house is in great shape, and I could easily close on it, and I knew I could get good tenants, then it might be worth $100 a month. If I suspect it would be a problem house, with difficult tenants, then it might not be worth $100 a month.
    1Reply
  • Kamal Ouneche
    Member since 2020 · 7 posts · 2 votes
    6y

    I bought my first house $120k, I put 20% down which is $27k plus closing costs  I m getting $200 cash flow. after the mortgage paid. nice tenant and want stay.

    0Reply
  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Dontrea Riser

    This Q comes up at least once per month. So many variables. Strategy. Number of doors. Deferred maintenance. Time inputs required. Appreciation of the particular property. Type of financing available. Backend potential. Length of hold. And then the almost always forgotten stuff from personal life like change in ability to finance, income, or marriage/ divorce/ more kids etc.

    0Reply
  • Josh CissellBusiness Member
    Property Manager · Oxford, MS · Member since 2017 · 37 posts · 19 votes
    6y

    @Matt Burr we also need to clarify if someone is talking about cash flow on a 15, 20, or 30 year note AND if the plan is to hold for long term once that note is paid off. At that point it becomes a pretty good paying mostly passive income in which the asset can still be sold later. So you've created a business. 10 paid for properties bringing in $1500/month is a pretty good paycheck for very little work.

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  • Jacob Sampson
    Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Scott Isbister:

    @Jacob Sampson

    what market(s) can you drive that type of cash flow on a 15 year note in C+ neighborhoods on a SFR?

    Current market definitely makes the deals harder to find, but I am able to find 2-6 units a year here in my home town ofTopekaKansas. I assume there are many smaller cities in the midwest where this is possible. The trade off is you get very little appreciation (which is a trade I am happy to make). As an example, a couple of years ago I purchased a 3/1 SFH for 40k that rents for $825. I think we put about $2500 into it to get it rent ready. When I look at the county appraisal site to see when it last sold it was 20 years previous for the same $40k price.

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