50% Rule Cash Flow Guideline

17 Replies

Hello BP!

So, what is your Cash Flow number you like to see after applying the 50% rule (and subtracting mortgage payments) to motivate you to move forward or lock down a deal?

IE: a place renting at $800 with a mortgage payment of $200.
$800*.5=$400 (50% Rule)
$400-$200=$200 (Cash Flow after 50% Rule and Mortgage payment)

I have only two rules/criteria for a good cash flow deal:

1 - I must recover all of the cash I put into the deal within 1 year.  Usually this happens within the first month, but I may need to wait until 6 months at the time of refinancing.

2 - With all expenses in place, including a PM and the refi payment, I have to clear a minimum NCF based on cost of that property-

     A -  $300/month on any property where the cost was less than $70k
    B -  $350/m......less than $100k, but greater than $70k
    C - $400/m......more than $100k

That's it.  Simple.  No "milk rules".

@Travis Washington

No 50% rule for me. But I have a few guidelines similar to @Joe Villeneuve  

1. Minimum COC of 20% with a nominal COC greater than 6k/year on purchase less than 200k

1.a IRR greater than 15% in less than 5 years.

2. Payback period of 3 years or less

(214) 864-9796

@Joe Villeneuve @Logan Hassinger

Joe and Logan, 

How many properties did you purchase over the last two years that met your criteria? 

I find that criteria impossible to meet here in Erie, PA on SFRs

thanks for sharing

Originally posted by @Robert M. :

@Joe Villeneuve@Logan Hassinger

Joe and Logan, 

How many properties did you purchase over the last two years that met your criteria? 

I find that criteria impossible to meet here in Erie, PA on SFRs

thanks for sharing

 Between myself, my REIC, and others I know, at least 100.

Originally posted by @Logan Hassinger :

@Travis Washington

No 50% rule for me. But I have a few guidelines similar to @Joe Villeneuve  

1. Minimum COC of 20% with a nominal COC greater than 6k/year on purchase less than 200k

1.a IRR greater than 15% in less than 5 years.

2. Payback period of 3 years or less

You'll notice my rules are a little faster than yours...LOL. I get all my cash back within the 1st year, so my COC is over 100%.

I don't use IRR, or any other measuring terms that I have no control over. I find they are fickle at best, and are rarely met since most uses for them are to rationalize bad deals.

I define a bad deal as one that doesn't meet my Cash Return Guidelines. 

@Travis Washington  

I do not purchase SFR. I only deal in 4 units or greater. I close on a deal at the end of the month that meets all my criteria. I have another potential deal that meets this criteria as well that I hopefully will be able to complete by mid summer.

I have only been in REI since December (mostly studying the game) so I still have a lot to learn.

(214) 864-9796
Hi, Robert M. ! I'm an investor in the Erie PA market, and I would love to connect. We may be able to help each other out.

@Joe Villeneuve

less than 1 year is fast, how do typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from 

(214) 864-9796
Originally posted by @Logan Hassinger :

@Joe Villeneuve

less than 1 year is fast, how do typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from 

1 - All cash in to buy/rehab.

2 - Do rehab (target time is 30 days or less)

3 - 10-14 days from rehab completion to 1st REFI (actually a Loan of Credit) which gets me 70% ARV, which gets me all of my cash back (sometimes more)...15 year amortization

4 - 6 months of seasoning gets me my long term hold refi (75% ARV). This is usually $100 + better on my cash flow due to 30 year amortization

5 - Repeat steps on next deals.  Actually this step fits in between steps #3 and #4

@Joe Villeneuve

 1 year is fast, how do you typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from private money. So then I'll have an infinite return hah. 

(214) 864-9796
Originally posted by @Logan Hassinger :

@Joe Villeneuve

 1 year is fast, how do you typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from private money. So then I'll have an infinite return hah. 

All cash in, refinance all cash out...plus more cash out if the property ARV will allow for it.

Originally posted by @Joe Villeneuve :
Originally posted by @Logan Hassinger:

@Joe Villeneuve

less than 1 year is fast, how do typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from 

1 - All cash in to buy/rehab.

2 - Do rehab (target time is 30 days or less)

3 - 10-14 days from rehab completion to 1st REFI (actually a Loan of Credit) which gets me 70% ARV, which gets me all of my cash back (sometimes more)...15 year amortization

4 - 6 months of seasoning gets me my long term hold refi (75% ARV). This is usually $100 + better on my cash flow due to 30 year amortization

5 - Repeat steps on next deals.  Actually this step fits in between steps #3 and #4

 Hey Joe,

Quick question, how many places do you currently have?  I'm just starting out, but I like your strategy here and might use it when I get to a much higher number of units.  Thanks!

@Joe Villeneuve

Sorry for the duplicate post. I see how your approach works, thanks for the insight.  I didn't know you could get lines of credit that amortize over such length. Can you expand on the line of credit piece?

(214) 864-9796
Originally posted by @Logan Hassinger :

@Joe Villeneuve

Sorry for the duplicate post. I see how your approach works, thanks for the insight.  I didn't know you could get lines of credit that amortize over such length. Can you expand on the line of credit piece?

 It's a credit loan made for non-owner occ.  $175 fee, 3.625% int over 15 year amort.  Int is locked for 5 years, then ???...but I pay it off in about 6 months with the 2nd refinance anyway.  The reason I do 2 is they both serve different purposes.  The Loan of Credit gets me my cash back fast to reinvest immediately.  the 2nd refi gets me my long term hold terms (4.5% int; amort 30 years).

Originally posted by @Travis Beehler :
Originally posted by @Joe Villeneuve:
Originally posted by @Logan Hassinger:

@Joe Villeneuve

less than 1 year is fast, how do typically finance your deals?

The one I'm closing on soon is just conventional with 20% down. My potential deal coming up will be owner financed but I'll need 25k which will be from 

1 - All cash in to buy/rehab.

2 - Do rehab (target time is 30 days or less)

3 - 10-14 days from rehab completion to 1st REFI (actually a Loan of Credit) which gets me 70% ARV, which gets me all of my cash back (sometimes more)...15 year amortization

4 - 6 months of seasoning gets me my long term hold refi (75% ARV). This is usually $100 + better on my cash flow due to 30 year amortization

5 - Repeat steps on next deals.  Actually this step fits in between steps #3 and #4

 Hey Joe,

Quick question, how many places do you currently have?  I'm just starting out, but I like your strategy here and might use it when I get to a much higher number of units.  Thanks!

 Somewhere between 0 and 1000...and we'll leave it at that.  (This is where I start winking)

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