Hi good afternoon, sorry for my lack of knowledge, in this case what is the 10 to 14 % ROI (Return On Interest?)?

And do you mind sharing the BRRR method?

yea thanks 6x. I didn't know that either. Back in 87 we didn't use those letters.

Let me tell you a story. Way back in 1997 I was looking to buy more apartments. The Economy was lousy and everyone was exiting real estate. I kept on buying and buying like there was no tomorrow -- everything was on sale at a discount.

But I never forgot the lesson of being "cash poor". In the hardest of times even a millionaire could find themselves in a bind -- asset rich but cash poor.

So I carefully did several quick calculations. I was buying another 8 unit property, each unit was called a double. The living room and bedroom's all looked the same. Spacious with large closets. During the day you had a living room and bedroom. But at night the living room doubled as another bedroom. Why? It had a walk in closet with a dressing area, mirror, lots of drawers and cloth rods for hanging stuff.

So during the next year employment because a problem. Over 50% of all of the construction jobs were lost due to the economy.

5 of my 8 tenants wanted to move from their 1 bedroom into a single-no bedroom apartment. I was charging $500 a month and a single down the street was going for only $375. The $125 saving a month as key to my tenants financial survival.

So I talked to Celia about her situation. I said if you move to the single unit, you still have to pay for your utilities. But if you find a roommate, the two of you could split the rent in half. So instead of paying $375 a month, you'd only pay $250, saving even more money. I showed her that her living room was actually also a bedroom.

So instead of having 5 vacant units I had 5 units with roommates. Between the two people per unit, it was easier for them together to pay their rent.

But I had to make a concession, the tenant could drop their rent from $500 a month to only $375, unit they found a room mate. It only took them an average of 4 days until someone else in financial trouble took the up on the offer.

So I was going to loose $125 a month x 5 units, or $625 a month, OR 15% of my total monthly rent. Since I put down enough down payment, I had lots of wiggle room to make any necessary rental adjustment to keep things going smooth.

Robert the bottom line-- other than leveraged out--- you FIGURED IT OUT DIDIN'T YOU?

It really depends on your situation. IF it cash flows and you have the down payment and the bank will loan you money and it checks your boxes (whatever they are - good neighborhood, brick, newer construction, ranch, 3 bed 2 bath whatever) then why not do it. Age factors into things as well, if I was 30 I'd be more aggressive. At 60, I'd be less aggressive. On the personal side, I am not going above a 25% debt to net worth situation. Why because a lot of my net worth is real estate. IF it declines in value I might be at 50% debt to net fairly quickly.

10-14% ROI isn't a lot when you consider the hassle factor. The S&P 500 has returned an average of 10.7% annualized since 1972, and that's true "mail box money", not dealing with tenants and toilets.

Now let's be clear: are you including ALL components of ROI? Those include:

1) Free and clear cash flow after all expenses, including a reasonable salary for whoever does your managements and maintenance, and after set asides for Capital Expense reserves for the big stuff that slowly wears out over time.

2) Loan balance paydown/amortization.

3) Appreciation of the asset.

4) Tax savings caused by depreciation.

You might be seeing rosier numbers after all that. On the other hand, if you are including all of that already, then I would say try to do better. I'd want a minimum 20% with all factors included on my money or if I can't find that rate then I'd settle for something with much less hassle.

Keep in mind we got into this to make money, not buy ourselves unpaid volunteer jobs.

Lack of ash flow will kill any business

Stop buying when the additional risk isn't worth the additional dollars.

Stop buying when the additional risk isn't worth the additional dollars.

Will be different for everyone. And will change over time.

If your asking the question of how much leverage is too much? You might be at the tipping point ?

PMH, the renters lost their jobs as the economy contracted. It started with the construction industry which basically came to a halt because of high interest rates. All those workers were now not eating out and spending their dollars. Many businesses in the service industry closed next. Then every business felt the pinch and started cutting back on expenses, labor being a big one.

[[[[...... .where did all those renters go 40 years ago (?) . To a few posters here. the change in appraised or mkt value is IRRELEVANT......]]]]]]

I don't know where all your renter went but my good renters all moved away to somewhere else where they thought they could get a job. So maybe someone else got them as tenants, but they were gone and out of the area, so I sure didn't get them as tenants.

Rents dropped to half of what they were and vacancies were long. It was not a good time to be highly leveraged.

Sam, figure out how many you can keep if rents drop and don't buy past the point where you can figure out how to pay for them in a soft market.