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% Cashflow
(by Lance [TX])
Mar 27, 2004 8:02 PM
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% Cashflow
(by Streetracer [RI])
Mar 27, 2004 10:16 PM
RE:
% Cashflow
(by Craig [IL])
Mar 28, 2004 4:11 AM
RE:
% Cashflow
(by Lance [TX])
Mar 28, 2004 4:57 AM
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% Cashflow
(by Jeff S [MI])
Mar 28, 2004 7:02 AM
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% Cashflow
(by Kelly [OH])
Mar 28, 2004 8:13 AM
RE:
% Cashflow
(by Lance [TX])
Mar 28, 2004 11:11 AM
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% Cashflow
(by Bill [OH])
Mar 28, 2004 5:13 PM
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% Cashflow
(by bizman [Ga])
Mar 28, 2004 7:38 PM
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% Cashflow
(by tyler [nc])
Mar 29, 2004 4:43 AM
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% Cashflow
(by Dave [IL])
Mar 29, 2004 12:59 PM
RE:
% Cashflow
(by Dave [OH])
Mar 29, 2004 1:25 PM
RE:
% Cashflow
(by mike [mo])
Mar 29, 2004 3:37 PM
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% Cashflow
(by Neil [MD])
Mar 30, 2004 5:13 PM
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% Cashflow
(by Dave [IL])
Mar 30, 2004 5:52 PM
RE:
% Cashflow
(by Lance [TX])
Mar 31, 2004 4:16 AM
RE:
% Cashflow
(by Neil [md])
Mar 31, 2004 4:33 PM
RE:
% Cashflow
(by Dave [IL])
Apr 2, 2004 2:10 PM
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Hi, I only have 2 rentals - a condo built a year ago & which was (in retrospect) not a good buy (too much competition with other condos) and a residential property I converted to commercial and which almost bankrupted me before I managed finally to get it leased for 3 years with 10% annual escalations (starting very low). So, I'm ready for my next one but this time I'm being a bit more careful.... I've built a spreadsheet that analysis the investment before it's made, i.e. estimates of all up-front costs & including potential rent & all monthly expenses to come up with an eventual net monthly cash-flow and "cash-on-cash" return. My question to the experienced investors out there is... what would be an acceptable "cash-on-cash" return for you when looking at a potential new property investment ? Appreciate any advice. Thanks --24.93.35.201 |
| You can overleverage to increase you cash on cash returns, so I would beware of using that as the primary measure. Monthly or annual rents as a precent of what you pay for the property is less subject to manipulation by you. The SELLER can manipulate rents by filling the place with deadbeat tenants who have agreed to a high rent but have no intention of paying it. --165.121.136.26 |
| Well, lenders will count only 75% of income in their ratios. Any less, then your ratios for a future loan will be injured. So, perhaps, you want inocme from the property to be 1/3 higher than PITI --204.248.61.11 |
| Thanks - 1/3 higher than PITI is a useful ratio. Also, I take the point about possibly over-leveraging to get the "cash-on-cash" return figure higher. I was thinking that with rates at historic lows it might be a good time to lock it in and increase leverage. Then just scramble hard each month to make sure vacancies are limited. Is that a bad idea ? --24.93.35.201 |
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Yeah, it's kind of a tightrope you have to walk. Overleveraging vs realistic rent values and vacancies and projected property values vs today's cost, future interest rates, and repair/renovation costs and needs. Besides getting a good long term tenant who won't damage the property, etc, etc. It's really not a walk in the park all the times, now is it ?? Sure wish I had a crystal ball. Anyways, as you have experienced, those things have to be weighed against one another, if you overleverage and there are too many vacancies, the result can be foreclosures, so you have to go forward based on your personal tolerance of those bad things vs the potential of the good things. Welcome to the wonderful world of landlording, and Good Luck. --12.75.18.30 |
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Think of it this way - You have a number of investments you can make - stocks, bonds, real estate, etc. Compare the returns. Say the stock market returns on average about 9% per year, then compare that to your real estate investment. If your cash on cash return is better than you can do elsewhere and that is even before tax advantages, appresciation, etc, then go with it. If the return is only 2-3%, then you might as well buy a good index fund, at least then you do not have the headache of tenants. It's all about the best options for your money and where to put it . But remember, make your decision based on present cash flow not future cash flow and appreciation. --69.133.18.119 |
| OK - Comparing alternative returns to see which gives the better rate... bearing in mind the risk and the hassle. So, compensate for the possible extra risk & also compensate with extra return for the extra hassle factor and I come up with around 15% cash-on-cash return required before going with a new property investment. & that's based on cash income now not some possible future income. Does that sound reasonable ? --24.93.35.201 |
| I try to figure it as a dollar amount "per door." For instance, I would require a duplex to be throwing off $200 positive cash flow after all expenses related to the property have been satisfied. Those expenses include the mortgage; a 20% holdback for vacancy & maintenance; insurance and property taxes. If my pro forma doesn't show a PCF of $100 per door per month, I generally pass on the opportunity. --24.210.24.49 |
| Stupid question. But does per door = one unit? --68.217.33.111 |
| i believe the average on stocks is slightly under 12%.....not that it really matters....but i need to get paid for my extra time and hassle of LLing vs. buying and investigating stock....therefore i have chosen a minimum cash on cash return of 18%.....and no don't manipulate leverage just to achieve....just bought some duplex's where i put 20%down....still getting 18%+ .... --206.212.89.240 |
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The average on stocks depends heavily on what you are looking at. Large cap stocks average slightly over 10% over time, while small caps do a little over 12% long term. I agree with the others above, I need much more than that to reward my risk and efforts with RE. Personally, I look for a cap rate of 10% minimum which should then throw off 20-30% ROI with 20% down. Putting down just 10% pushes the return up, but does not double it due to higher debt service. There would have to be other very attractive features on a prop to get me to bend these rules more than a little. Examples would be current rents obviously below market by a substantial amount and not locked in with long term leases, great appreciation virtually guaranteed, good potential for subdividing or changes in use or zoning to increase cash flow, or buying lots/land that adjoin something I already own. . --12.66.63.32 |
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It depends. I just bought a nice 4 unit in a pricey suburb close to my house. It is half way between my other 4 unit (the closer one is 2 miles away and the other is 4 miles away). It just made sense, though I had to pay list price. They wouldn't accept less, their two others sold within a week and this was it. Great tenants, great building. Just have to manage, collect rents, and rent out the open unit. A 55 plus building, it won't give much positive cash flow until fully rented, and then probably only about $300 - $450 a month. But with no major repairs needed for a while, I was buying the tenants building my equity and the depreciation for my tax return loss. If you are going to pay more than you should for a prop, make sure it will rent, it is clean, needs no repairs, and have a niche. Mine for this one is the senior housing. Remember in addition to cash flow you are also buying depreciation, appreciation, and someone else paying the mortgage. --63.162.24.193 |
| I count on 15 - 20 % return on investment. this is with 20% down --130.76.96.17 |
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One of the more useful tools I've seen is GRM. (Gross Rent Multiplier). Anything over a 6 GRM and it won't cash flow positive. Anything under 6 and it will. (with such low rates now a days you might be able to go to 6.5) Just take the price of the building and divide by the gross yearly rent. In todays market I don't even think about appreciation and tax advantages. I want cash flow, and a lot of it. Cash flow is a wonderful thing (as you found out the hard way by not having it on your first two properties.) With cash flow you can withstand a down market. You can withstand falling prices, etc. When you have positive cashflow it helps you get more loans. etc etc etc. GRM is a tool. Use it as a first glance to tell you if you should dig in a little deeper. I don't touch properties with over 5 GRM. The property I'm looking at now is an upstairs downstairs apartment just rehabbed, seperatly metered. $1000 month rent. I will buy for 50K. Can you say Cha Ching!? --172.208.202.188 |
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Neil's annual gross rent multiplier above is worth looking at; however, his statement that anything over a 6 won't cash flow is not correct. Every property is different and must be looked at from several angles before making a decision. I prefer a monthly multiplier, so his 6.5 becomes a 78 on that scale. A 78 would generally be a good deal for me. Many have posted here they are seeing monthly multipliers in the 100 range which tranlates to an annual multiplier of 8+. You have to look at every prop on it's own merits. The multiplier won't really tell you anything about monthly cash flow since it does not account for any expenses or required updates. It just quickly lets you know if a prop is worth a closer look. . --12.66.102.122 |
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Thanks very much guys - some really good tips here. I'm adding these "rule of thumb" guidelines to my spreadsheet as reminders. Wish I could find something here for $50 000.00 renting for a $1000.00 a month !! That's pretty incredible... Here in TX I find that you have to be really careful as appreciation is slow (compared to CA) and not guaranteed - there's so much land available that someone could just build elsewhere. --24.93.35.201 |
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for whatever it's worth, I don't expect appreciation, if I get it.. it's gravy. Also I had to buy in what I would consider a somewhat depressed area. Not dangerous. Not a warzone, but depressed. Rough around the edges. --172.142.14.164 |
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Bringing this one back up since several other questions on this topic have been asked. . --12.66.66.110 |