Financial Criteria / Measurements

3 Replies

There is plenty of discussion throughout the forums on the 2% rule, the 50% rule, and even a particular dollar per door (say, $150 per door) requirement.

I was wondering what criteria others use when deciding whether or not to go forward and make an investment in a buy-and-hold property.

Cash Flow?  Any set monthly minimum?

ROI? Including accrued equity?

COC Returns?

I realize this will change rather drastically from one area to another (and will be vastly different in appreciating markets as opposed to stable rental markets).  Are there any standard benchmarks that I should be aware of?

I'm finding some profitable deals, but I'm having trouble differentiating those that are worth the effort/work required (after all, there are other investments like the stock market that can provide a rather work-free 7% to 9%).  I'm thinking that seeing some real-life examples from other active investors would be insightful.  

Hi Robert, over by me I look for properties that exceed the 1% rule. I don't use investor funds for any of my rental holdings yet so all down payment is out of pocket for me - typically 25% on multifamily investment properties. I have a $ amount that I like to see for each property after calculating the expenses as well.

1% is a nice threshold test, but I'm looking for the bottom line financial targets.

Can't just use, the 1% (or 2% for that matter) rule, as they don't factor in expenses.  The rent to purchase price ratio means very little if the expenses are abnormally large.

I use the Cash On Cash return metric.  I look for 20% return.   If I had much more capital burning a hole in my account I would take 10% return.