Hey GKARL (and anyone else who wants to chime in).

In 6x6's thread you said you were an accountant by trade. What numbers or metrics do you find most useful to gauging your success or profitability in assessing a property to purchase, evaluating an existing property, and ultimately selling an unit?

Sometimes a simple Income and expense report doesn't really tell the whole story. Maybe some of the expenses are needs and not wants. Maybe there should have been some expenses that were delayed. Maybe adding a roof kills your income for the year. Maybe 5 year Income and expense reports would be more useful in evaluating things.

Often times sellers fudge numbers and it's hard to get good read on the profitability of a home.

Just looking for thoughts.

Sometimes I think it doesn't matter as long as the bills are being paid, money is coming in, and tenants aren't whining.

Bonanza, I mainly use the cap rate to evaluate investments. For me, the cap rate has to be about double the prevailing rate of financing for the place to cash flow decently. If I'm buying something that is distressed that I have to renovate (my preference )that's what I'm looking for at the end of the process. I will also consider something below that metric if it has turnaround potential. Sellers almost always overstate NOI by excluding vacancy and repair reserves. I always adjust the numbers given for that. I don’t adjust for management fees as I find most small investors self manage like I do. Also, it’s very important to evaluate capex. A lot of that will come up on inspection if I’m buying a place that’s turnkey. I tend not to buy turnkey however. I prefer buying distressed and renovating as I know everything is up to snuff and the capex has been addressed.

I got started late with investing so my focus has been on scale which basically means multifamily. I prefer something that's five units and above as it gives me the opportunity to force equity by managing the business better or enhancing it. I've never figured out a way to make enough dollars from SFHs unless I had a bunch of them and I didn't feel I had the time to do that as I needed to scale quickly for my retirement goals. Also the multi-family setup gave me the necessary cash flow to actually hire people to do the work. So, from an analysis standpoint it's cap rate and a minimum cash flow that works for me. Thus something can meet the cap rate target but won't get past the minimum cash flow hurdle.

Obviously, with those targets, not much makes sense for me to buy right now.

I got started so my mother-in-law could have a decent place to stay.

Mine are all SFH or dupes. Typically the dupes CF more. It is interesting that you went for multi family because it gave you enough CF to hire out immediately.

That has not been the case for me in the SFH realm. Around me if it is a multi above four it is either a slum, owned by the S8 people or part of a big corporation.

I need to get some additional information so I can compare and contrast the singles vs the multis.

I use a couple of metrics the bank uses to judge my PORFOLIO

On an individual property level I use some the averages that are outlined from the site bizstats dot com

For my portfolio - I judge where I believe we are at in the real estate cycle and adjust my DSCR and LTV ratio to account for the amount of risk I want to have. Today, I believe we are closer to the top than we are to the bottom so my LTV is lower (I am less leveraged) and my DSCR is trending upward. I am playing more defensive. I believe there are many online who are playing the waiting game on the market and that doesn't work out well in the long term.

The website bizstats is a paid site, but more SCORE chapters have access to it or you can can purchase it - it is worth wild. For landlords there were more than 1.1Million people who answered questions about performance data. It is caulked full of ratios that businesses are SUPPOSE to follow. This current market is not following these ratios as there is still too much cash out there and not enough investment that investors view as safe. What is impacting this? Lots of investors have gray hair and they are shifting towards safer plays - like real estate. But what happens if too many people do any one thing in any asset class?

Some highlights from Bizstats with commercial properties - the rule of 1/3 applies.

1/3 of the income should go to debt service

1/3 of the income to operational expenses

1/3 of the income goes to variable expenses and owners draw.

The data in the world of SFH is a lot less clear ratio wise.

37% of landlords out there are not making any money

a typical landlord last only seven years before they change careers.

COGS was at 41% so that rule of 1/3 above doesn't work. More than 22% of the properties were actually free and clear

Gross profit is 11%

and net profit is only 4%

The fastest way to make wealth in the world of SFH is using Sub To techniques. But those results vary a great deal depending on your the properties that you target in your marketing farm.

We like multis but we don't have anything bigger than a quadplex. Mostly because they almost don't exist here, and don't rent for anything near what you need to truly cash flow.

ken- One multi I have is all separate. I love it. They mow and pay the water on their own.

Still have five dupes that I pay water and mowing. I do nothing with snow removal anywhere.

My great plans last year included getting the remaining dupes on individual meters. That has not happened and looks as if it still will not this year.

Needs to be a priority as I have proven tenants are more water conscious when they pay that bill.

Bonanza,

Some thoughts: I want each prop to stand on it's own financially,

bringing in profit, not just income.

In the beginning I bought ANYTHING in ANY CONDITION that I could work on.

Even tho those homes produce the most profit I am selling them and 1031ing into NICE homes to pay my bills without my constant attention. OR if something happens to me Wifey can handle a small number of homes.

$2000 profit each rather than 10 at $200 each.

10 homes x $2000 = $200,000/year. Livable. (I learned that approach at a seminar)

My criteria has shifted to EASY TO RENT - NICE homes in nice neighborhoods with good schools, multiple baths, garages.

Because it's a 1031 deal I am basically buying the nice home at a 37% discount even if I pay full price, because I did not have to pay cap gains when selling.

CAPEX - I do 5 year reports on home, better is a group of homes.

Bonanza,

Some thoughts: I want each prop to stand on it's own financially,

bringing in profit, not just income.

In the beginning I bought ANYTHING in ANY CONDITION that I could work on.

Even tho those homes produce the most profit I am selling them and 1031ing into NICE homes to pay my bills without my constant attention. OR if something happens to me Wifey can handle a small number of homes.

$2000 profit each rather than 10 at $200 each.

10 homes x $2000 = $200,000/year. Livable. (I learned that approach at a seminar)

My criteria has shifted to EASY TO RENT - NICE homes in nice neighborhoods with good schools, multiple baths, garages.

Because it's a 1031 deal I am basically buying the nice home at a 37% discount even if I pay full price, because I did not have to pay cap gains when selling.

CAPEX - I do 5 year reports on home, better is a group of homes.