With all the tools and calculators for financial analysis, which ones would you rely on more heavily for SFR and small multi-units? It seems like sometimes some of them contradict each other. As a new investor, I'm looking for a little bit of clarity on how to decipher on what's important and what not to focus on when dealing with these kinds of properties. Thanks! Thinking of investing in Hammond for all you investors in Hammond Id appreciate your input on the topic. Thanks!
There's no perfect answer to that, but you can use below as a starting point (not necessary the complete way.) You can change the target number as you wish. This is for SFR.
- Positive cash-flow of $250 or more after all the expenses; Mortgage, property tax, property insurance, property management fee if any, repairs and improvements, and vacancy - 5% should do it.
- Cash-on-cash return better than 15% - Ex: If the house is $100k, and you put $20k down, you want the positive cash-flow to be $250 or more. 15% of $20k is $3,000. $3,000 divided by 12 months is $250.
Spreadsheet is enough to do the above. I would just pick a house, as if you are buying it and start analyzing it. The more you do, the better you get.
Thanks for the advise Soh. Im starting to analyze a lot of properties and it's making sense to me now. I like the cash on cash return and cash flow calculations more than the cap rate, esp for sfr and smaller multi family homes.
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