Would you take 75%+ CoC with $200 monthly cash flow?
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
Would you take 75%+ CoC with $200 monthly cash flow?
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes@Account Closed I will be the contrarian but explain my rationale. You can think about it or ignore it.
>I have 20-30% equity in all of my refinanced properties, I can't say I would even be able to sell them now for what I owe on them.
This means you currently have 0% equity. I can see this if you refinanced immediately after a rehab, but a couple years of tenant wear and tear later but you indicate that you have been doing this a year so this is surprising. I do not know how this could occur but that is not my issue with your situation.
My issue is the scalability in the no appreciation market. If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month,still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
I would pass on the initial question posed using the numbers provided. $200/RE per month with no appreciation just will not provide the return I require for that level of effort.
Maybe you can find properties with similar cash flow that have a little better appreciation in your area. Note 5% appreciation with an 80% LTV is a 25% return from the appreciation. Otherwise, you need to find properties with better cash flow.
Good luck
59 Replies
- Contractor · Warren, OH · Member since 2015 · 147 posts · 55 votes7y
@CJ M.
That’s one of the many reasons I’m researching investing, I have a good, stable job (construction management) but would like to have a safety net in case the unthinkable happens. Thanks for the info and good luck to you!
- Real Estate Agent · Katy, TX (Katy) · Member since 2019 · 7 posts · 5 votes7y
Are you investing in your local market? I'm also curious as to which turn-key provider you've used. Seems there are a lot of mixed reviews on many in the "hot-bed" cash-flow markets.
- Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes7y
@Nathan Shotts
No providers, just local investors and sellers
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
@Account Closed I will be the contrarian but explain my rationale. You can think about it or ignore it.
>I have 20-30% equity in all of my refinanced properties, I can't say I would even be able to sell them now for what I owe on them.
This means you currently have 0% equity. I can see this if you refinanced immediately after a rehab, but a couple years of tenant wear and tear later but you indicate that you have been doing this a year so this is surprising. I do not know how this could occur but that is not my issue with your situation.
My issue is the scalability in the no appreciation market. If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month,still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
I would pass on the initial question posed using the numbers provided. $200/RE per month with no appreciation just will not provide the return I require for that level of effort.
Maybe you can find properties with similar cash flow that have a little better appreciation in your area. Note 5% appreciation with an 80% LTV is a 25% return from the appreciation. Otherwise, you need to find properties with better cash flow.
Good luck
- Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes7y
@Dan Heuschele
Hey look, no worries about being the contrarian Dan. I really appreciate the time you took to provide that feedback...and you are spot on with your numbers. That said, keep in mind, the CF is nearly double those numbers if I don't back out 25% every month for allowances (which by then I shouldn't need to as I'll have an EF/reserve stocked away). 20 isn't going to be too bad to manage either as everything is rehabbed and local, and I have a W2 job... so 100% of profit gets reinvested back into the business.
I was thinking of things started getting too heavy, I would hire a PM. Yes, they cost a bit, but I'd still have decent CF from not doing much.
I could be off base on my thinking, but that's why I'm posting here.
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
- Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes7y
@CJ M. Can respond to @Dan Heuschele point on your statement about having 20-30% equity in theses properties, but if you sold you would be breakeven. I don’t understand this? You have realtor commissions and some closing cost, but where is the other 20-30% of equity disappearing to?
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Account Closed:
@Dan Heuschele
Hey look, no worries about being the contrarian Dan. I really appreciate the time you took to provide that feedback...and you are spot on with your numbers. That said, keep in mind, the CF is nearly double those numbers if I don't back out 25% every month for allowances (which by then I shouldn't need to as I'll have an EF/reserve stocked away). 20 isn't going to be too bad to manage either as everything is rehabbed and local, and I have a W2 job... so 100% of profit gets reinvested back into the business.
I was thinking of things started getting too heavy, I would hire a PM. Yes, they cost a bit, but I'd still have decent CF from not doing much.
I could be off base on my thinking, but that's why I'm posting here.
The issue with removing the 25% is that those cost will come. There is a reason for the 50% rule. Regardless if you allocate for maintenance/cap expense or not, the expense still comes.
I have used PMs and self managed. The issue with PMs on that rent range is that your actual PM charges will be a large percentage of the rent. The $200 month cash flow will take a substantial hit. Using a PM only works if the return can support it and $200/month cash flow with no appreciation would reduce the return significantly.
There are many posts that contradict my post. Consider if my rationale makes sense or if their enthusiastic posts have anything that can pass for a logical rationale.
- Rental Property Investor · Minneapolis · Member since 2019 · 257 posts · 244 votes7y
@Dan Heuschele
I tend to agree with Dan, this question comes down to your appreciation assumptions. If you really think appreciation is going be negligent long term then I question the effort for those CF numbers. Even if you can get 2% appreciation LT then I think it is okay as you get the upside of the leverage. And really inflation should cause building material and labor to increase 2-3% per year so an appreciation assumption of 2-3% is logical. Where you need to be careful is if your market is tied to some microeconomics trend that would cause downward pressure on housing prices, like one industry or employer town where that employer or industry is shrinking and demand for housing is decreasing. Like a oil town or Detroit with the automakers
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
- Investor · Massillon, OH · Member since 2015 · 266 posts · 156 votes7y
Those are good numbers. While you say no appreciation, and I agree, rents are going up steadily and have been. $200/mo with a lot going into reserves for a 75% coc is really good. I self manage 17 in the area. I have some help on the maintenance side, but I dont think my time is more than a half hour per door when rented. This can also all be handled by text, phone etc. Other than an eviction. Which in Canton I think the owner must be present for anyway.
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
- Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes7y
Wow, lot's of good feedback and responses. Thanks everyone! I have a number of other things I need to get to, but let me answer these last couple of questions before I abandon this thread and move on...
@Randy Bloch when I said I would probably break-even with 20-30% in equity, it might have been a bit of an stretch, however it could happen if I were to sell right now (which I'm not). For example, after realtor fees, mortgage payments/holding costs, etc. by closing time, a chunk of my equity could easily be chewed up. On top of that, in my market, prices can be a bit volatile meaning an $80K house could be on a street where a few $30K houses just sold, thus driving down property values. Lastly, my notes are all new this past year, so I haven't had a chance to pay down much more on the loans. Anyway, those are just my thoughts as I'd rather err on the side of conservative.
@Dan H. I think the 50% rule is a good goal, however my experience is that it's not realistic most of the time if a person wants to grow quickly while using leverage. Yes, it's attainable but probably requires more out-of-pocket money upfront. An example of why I don't think the rule always works, my first deal was a $26K purchase. I rehabbed it for another $30K(ish), and it appraised for $100K. After refi (7% amortized 30 years), I actually made about $8K after recouping my initial costs. It now rents for $1,100/mo. From my understanding, the 50% rule, means that before debt service I need to back out $550 for expenses. That leaves $550. Mortgage is $540/mo which equates to CF of $10. Not very exciting based on that rule. That said, if I'm understanding the rule incorrectly feel free to chime in.
@Jeffery Waicak Thank you. I will shoot you a note and maybe we can connect.
Again, I appreciate everyone who took the time to comment. I also know it's tough to have a full understanding of one's situation via a quick question/post online and I do have a few great take-aways from this discussion (pro's and con's). REI has been an exciting ride for me to say the least! I've been fortunate to grow my properties by double-digits this past year (along with being blessed with a truly wonderful support system and mentors!) and I'm planning to grow the same this year. BP has been a fantastic tool and I'm looking forward to future discussions on here!
If anyone would like to connect or chat further, feel free to reach out to me on BP. Thanks again everyone, and best wishes!
- Lender · Colorado, Missouri & Alabama · Member since 2018 · 21 posts · 16 votes7y
Rule of thumb - always stick to your formula - keep the capitalization percentage and allowance for repairs to protect yourself - I've managed 100+ private homes and Murphy's Law when something goes wrong they all go wrong. ALWAYS budget for a rainy day, each property needs to be self sustaining financially.
- Rental Property Investor · Holland MI · Member since 2014 · 79 posts · 27 votes7y
@Account Closed : Hard to argue with 75% CoC returns. What market are you buying in? Canton? Also, I'm curious if you ever run actual numbers in a spreadsheet or in the BP Rental Property Calculator. Estimating 25% for expenses on top of PITI may be working good, but if it were me, I'd want to see real numbers. One last thing: if you are buying turnkey/already rehabbed properties, how are you able to do cash out refi's so easily, given that turnkey houses are usually priced close to fair market value?
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
Your being very efficient with your management. We have about the same number units but do not self manage all of them (we self manage almost all). We have fairly efficient processes that works until a larger item occurs (this month it was a shower pan failure). Between the two of us we are likely close to 1000 hours/year and more if we perform some large value adds.
However, lets use the 60 number of units you provided (the higher number from the range you provided) at $200/month. Cash flow would be $144K/year but you have a lot of capital invested that if even in a passive investment such as the S&P would provide return on that money. Lifetime S&P return is just below 10%. If we use $10K invested per property (20% of the lower of the OP price range) and a 10% S&P return (approximate lifetime rate of return of the S&P) would produce by $60K. So now you are managing 60 properties for $84K ($144K - $60K) above an easy passive investment.
That is not for me. I strive for about that return year 1 of a single purchase and mostly have achieved it.
My view is the OP either has to increase his cash flow significantly ($400/unit could work) or invest in a locale with historical appreciation that is above the inflation rate to obtain a return that is likely to be impactful to his life. Adding in some value adds for one time increase in return (difficult via turnkey) could also help make an impactful difference.
Simply managing units at $200/unit per month will not get him very far unless he goes true multifamily (A 50 unit apartment at $200/unit would provide a meaningful return and can scale).
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Account Closed:
Wow, lot's of good feedback and responses. Thanks everyone! I have a number of other things I need to get to, but let me answer these last couple of questions before I abandon this thread and move on...
@Randy Bloch when I said I would probably break-even with 20-30% in equity, it might have been a bit of an stretch, however it could happen if I were to sell right now (which I'm not). For example, after realtor fees, mortgage payments/holding costs, etc. by closing time, a chunk of my equity could easily be chewed up. On top of that, in my market, prices can be a bit volatile meaning an $80K house could be on a street where a few $30K houses just sold, thus driving down property values. Lastly, my notes are all new this past year, so I haven't had a chance to pay down much more on the loans. Anyway, those are just my thoughts as I'd rather err on the side of conservative.
@Dan H. I think the 50% rule is a good goal, however my experience is that it's not realistic most of the time if a person wants to grow quickly while using leverage. Yes, it's attainable but probably requires more out-of-pocket money upfront. An example of why I don't think the rule always works, my first deal was a $26K purchase. I rehabbed it for another $30K(ish), and it appraised for $100K. After refi (7% amortized 30 years), I actually made about $8K after recouping my initial costs. It now rents for $1,100/mo. From my understanding, the 50% rule, means that before debt service I need to back out $550 for expenses. That leaves $550. Mortgage is $540/mo which equates to CF of $10. Not very exciting based on that rule. That said, if I'm understanding the rule incorrectly feel free to chime in.
@Jeffery Waicak Thank you. I will shoot you a note and maybe we can connect.
Again, I appreciate everyone who took the time to comment. I also know it's tough to have a full understanding of one's situation via a quick question/post online and I do have a few great take-aways from this discussion (pro's and con's). REI has been an exciting ride for me to say the least! I've been fortunate to grow my properties by double-digits this past year (along with being blessed with a truly wonderful support system and mentors!) and I'm planning to grow the same this year. BP has been a fantastic tool and I'm looking forward to future discussions on here!
If anyone would like to connect or chat further, feel free to reach out to me on BP. Thanks again everyone, and best wishes!
I suspect you may be a little off on the rule (but basically have it correct) as I think you indicated elsewhere that your mortgage was PITI. The 50% rule includes the property tax and insurance in the 50% (everything except debt service) so you appear to have double counted the property tax and insurance.
Have you ever filled out a cap expense estimate spreadsheet? Take the cost of an item and divide it by the expected lifetime of the item to determine its expected costs. Quite a few years ago I had one of these for each my properties. After the first one, the subsequent ones leverage it and do not take that long to create. Here is an example: Hot water heater replacement: Cost using a plumber in my local with a decent water heater $1000, expected life is 12.5 years. Cost per month is $1000 / 12.5 / 12 = ~$7/month. Cap expense for a water heater in my locale should be $7/month. A water heater is a smaller item. Roofs, kitchens, foundations, hardscape, bathrooms, etc. are larger items. Roof of asphalt shingle replacement (not new layer) cost $8K (typical rental size structure which is not large), lifetime 20 years. Monthly cap expense: $8000 / 20 /12 = $33/month. I try to allocate all my expenses and lifetimes conservatively. I allocate expenses as though I am not doing the work (hard to scale if you are the handyman). I would rather overestimate cap expense than vice versa. Similar, I would rather underestimate income than vice versa. I want my projections to be conservative.
Assuming not actively managed (i.e. use of PM, use of contractors, etc.)... My cap expense spreadsheet revealed to me that the 50% rule is too aggressive in lower rent markets and the investor should probably use 60%. Similar, it is too conservative in high rent markets (NYC, Coastal So Cal, San Francisco, etc.) and that 40% would probably be safe. For the majority of large cities in the US, the 50% rule appears to be a decent rule of thumb. Note if you actively manage and/or do some/much of the work yourself, these projections will be too conservative.
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
Your being very efficient with your management. We have about the same number units but do not self manage all of them (we self manage almost all). We have fairly efficient processes that works until a larger item occurs (this month it was a shower pan failure). Between the two of us we are likely close to 1000 hours/year and more if we perform some large value adds.
However, lets use the 60 number of units you provided (the higher number from the range you provided) at $200/month. Cash flow would be $144K/year but you have a lot of capital invested that if even in a passive investment such as the S&P would provide return on that money. Lifetime S&P return is just below 10%. If we use $10K invested per property (20% of the lower of the OP price range) and a 10% S&P return (approximate lifetime rate of return of the S&P) would produce by $60K. So now you are managing 60 properties for $84K ($144K - $60K) above an easy passive investment.
That is not for me. I strive for about that return year 1 of a single purchase and mostly have achieved it.
My view is the OP either has to increase his cash flow significantly ($400/unit could work) or invest in a locale with historical appreciation that is above the inflation rate to obtain a return that is likely to be impactful to his life. Adding in some value adds for one time increase in return (difficult via turnkey) could also help make an impactful difference.
Simply managing units at $200/unit per month will not get him very far unless he goes true multifamily (A 50 unit apartment at $200/unit would provide a meaningful return and can scale).
Yes so you make $84,000 for a 240 hour investment per year according to my numbers. That's $350/hr. That also doesn't include your principal payments and any potential appreciation. But let's say theres no appreciation for simplicity.
My principal payments are probably $75/unit/month.
So you get $275/unit/month = $198,000. 198 - 60k (s&p investment) = $138,000 for 240 hrs = $575/hr.
I'm returning 18% right now COC with 25% down on a 20 year amortization. Soon I will refi and take out all my equity. After that point I outpace any index fund because I have cash flow with $0 invested. But I never count on this because you are beholden to the debt market.
Now I agree with you large MF is much better. I invest in small MF for a variety of reasons(3-15 units would be my ideal). I stay away from SFR, but it does work as long as you properly account for Capex.
Also my goal is to eventually bring in staff in-house and grow to 200+ units.
Do you have or see investments that net you $400/month? I'd be curious to see them. Like I've said before, in todays market I haven't seen an accurately underwritten market deal that you nets $400+/month. At least not in a decent market.
- 7yMindy JensenPro MemberBiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
Originally posted by @Account Closed:
My feeling is, if I can purchase a rehabbed property that cash flows for no money out of pocket, it's worth the lower CF...unless I'm way off base here.
So you're paying $0 to make $200 a month? Sounds like a winner to me.
Are you accounting for vacancy & CapEx (just because it's recently rehabbed doesn't mean nothing will break, ever) and still getting $200? Seems like a no brainer to keep it.
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
Your being very efficient with your management. We have about the same number units but do not self manage all of them (we self manage almost all). We have fairly efficient processes that works until a larger item occurs (this month it was a shower pan failure). Between the two of us we are likely close to 1000 hours/year and more if we perform some large value adds.
However, lets use the 60 number of units you provided (the higher number from the range you provided) at $200/month. Cash flow would be $144K/year but you have a lot of capital invested that if even in a passive investment such as the S&P would provide return on that money. Lifetime S&P return is just below 10%. If we use $10K invested per property (20% of the lower of the OP price range) and a 10% S&P return (approximate lifetime rate of return of the S&P) would produce by $60K. So now you are managing 60 properties for $84K ($144K - $60K) above an easy passive investment.
That is not for me. I strive for about that return year 1 of a single purchase and mostly have achieved it.
My view is the OP either has to increase his cash flow significantly ($400/unit could work) or invest in a locale with historical appreciation that is above the inflation rate to obtain a return that is likely to be impactful to his life. Adding in some value adds for one time increase in return (difficult via turnkey) could also help make an impactful difference.
Simply managing units at $200/unit per month will not get him very far unless he goes true multifamily (A 50 unit apartment at $200/unit would provide a meaningful return and can scale).
Yes so you make $84,000 for a 240 hour investment per year according to my numbers. That's $350/hr. That also doesn't include your principal payments and any potential appreciation. But let's say theres no appreciation for simplicity.
My principal payments are probably $75/unit/month.
So you get $275/unit/month = $198,000. 198 - 60k (s&p investment) = $138,000 for 240 hrs = $575/hr.
I'm returning 18% right now COC with 25% down on a 20 year amortization. Soon I will refi and take out all my equity. After that point I outpace any index fund because I have cash flow with $0 invested. But I never count on this because you are beholden to the debt market.
Now I agree with you large MF is much better. I invest in small MF for a variety of reasons(3-15 units would be my ideal). I stay away from SFR, but it does work as long as you properly account for Capex.
Also my goal is to eventually bring in staff in-house and grow to 200+ units.
Do you have or see investments that net you $400/month? I'd be curious to see them. Like I've said before, in todays market I haven't seen an accurately underwritten market deal that you nets $400+/month. At least not in a decent market.
>Do you have or see investments that net you $400/month? I'd be curious to see them.
Almost all of our units have cash flow greater than $400/unit. Purchase $375K, Rent averages $15K/month (including the vacancies (very few vacancies): higher rent in summer, lower rent in winter) STR but duplex so 2 units so divide rent by 2 to obtain per unit rent. All investment extracted long ago. I invite you to calculate the cash flow using any reasonable expenses that you desire. Use a high PM fee because it has a high PM fee (worth it). I project the cash flow to be ~$5K/unit month (~$10K/RE month), this leaves $5k/month for maintenance, cap ex, PM (high fees but worth it), utilities, STR taxes, and misc (book keeping, rent unit tax, etc.).
But the CF is also not a zero appreciation area. We purchased a RE that we projected initial CF at virtually $0 but it had a good value add. The purchase was $390K. Between the value add and the market appreciation, the value has increased by ~$200K (about half of it via the value add). We refinanced out most of our money (if we refinanced it today we could get out all of our money). It has cash flow lower than $200/unit (using my conservative numbers) but in 5 years we made ~$150K via the value add and appreciation (the rehab cost ~$50K). It would take a lot of years at $200/unit cash flow (this is a duplex so $400/re) to equal $150K ($150000/$400/12 = 31 years). I also expect the rent to go up ~$100/unit ($200/RE) at the next rent increase which will help our worse cash flow RE (to ~$300/unit cash flow).
$200/unit cash flow for small number of unit RE with no appreciation and no value add will not get most people to their goals. Find value adds, a little above inflation historical appreciation, and/or double the cash flow per unit and that can get people to their goals.
Good luck
- Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes7y
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
Your being very efficient with your management. We have about the same number units but do not self manage all of them (we self manage almost all). We have fairly efficient processes that works until a larger item occurs (this month it was a shower pan failure). Between the two of us we are likely close to 1000 hours/year and more if we perform some large value adds.
However, lets use the 60 number of units you provided (the higher number from the range you provided) at $200/month. Cash flow would be $144K/year but you have a lot of capital invested that if even in a passive investment such as the S&P would provide return on that money. Lifetime S&P return is just below 10%. If we use $10K invested per property (20% of the lower of the OP price range) and a 10% S&P return (approximate lifetime rate of return of the S&P) would produce by $60K. So now you are managing 60 properties for $84K ($144K - $60K) above an easy passive investment.
That is not for me. I strive for about that return year 1 of a single purchase and mostly have achieved it.
My view is the OP either has to increase his cash flow significantly ($400/unit could work) or invest in a locale with historical appreciation that is above the inflation rate to obtain a return that is likely to be impactful to his life. Adding in some value adds for one time increase in return (difficult via turnkey) could also help make an impactful difference.
Simply managing units at $200/unit per month will not get him very far unless he goes true multifamily (A 50 unit apartment at $200/unit would provide a meaningful return and can scale).
Yes so you make $84,000 for a 240 hour investment per year according to my numbers. That's $350/hr. That also doesn't include your principal payments and any potential appreciation. But let's say theres no appreciation for simplicity.
My principal payments are probably $75/unit/month.
So you get $275/unit/month = $198,000. 198 - 60k (s&p investment) = $138,000 for 240 hrs = $575/hr.
I'm returning 18% right now COC with 25% down on a 20 year amortization. Soon I will refi and take out all my equity. After that point I outpace any index fund because I have cash flow with $0 invested. But I never count on this because you are beholden to the debt market.
Now I agree with you large MF is much better. I invest in small MF for a variety of reasons(3-15 units would be my ideal). I stay away from SFR, but it does work as long as you properly account for Capex.
Also my goal is to eventually bring in staff in-house and grow to 200+ units.
Do you have or see investments that net you $400/month? I'd be curious to see them. Like I've said before, in todays market I haven't seen an accurately underwritten market deal that you nets $400+/month. At least not in a decent market.
>Do you have or see investments that net you $400/month? I'd be curious to see them.
Almost all of our units have cash flow greater than $400/unit but I will refer you to our best: 732 Jamaica court, San Diego (
https://www.vacasa.com/unit.php?UnitID=2086#ratings). Purchase $375K, Rent averages $15K/month (including the vacancies (very few vacancies): higher rent in summer, lower rent in winter) STR but duplex so 2 units so divide rent by 2 to obtain per unit rent. All investment extracted long ago. I invite you to calculate the cash flow using any reasonable expenses that you desire. Use a high PM fee because it has a high PM fee (worth it). I project the cash flow to be ~$5K/unit month (~$10K/RE month), this leaves $5k/month for maintenance, cap ex, PM (high fees but worth it), utilities, STR taxes, and misc (book keeping, rent unit tax, etc.).
But the CF is also not a zero appreciation area. We purchased a RE (1424 Juniper, Escondido) that we projected initial CF at virtually $0 but it had a good value add. The purchase was $390K. Between the value add and the market appreciation, the value has increased by ~$200K (about half of it via the value add). We refinanced out most of our money (if we refinanced it today we could get out all of our money). It has cash flow lower than $200/unit (using my conservative numbers) but in 5 years we made ~$150K via the value add and appreciation (the rehab cost ~$50K). It would take a lot of years at $200/unit cash flow (this is a duplex so $400/re) to equal $150K ($150000/$400/12 = 31 years). I also expect the rent to go up ~$100/unit ($200/RE) at the next rent increase which will help our worse cash flow RE (to ~$300/unit cash flow).
$200/unit cash flow for small number of unit RE with no appreciation and no value add will not get most people to their goals. Find value adds, a little above inflation historical appreciation, and/or double the cash flow per unit and that can get people to their goals.
Good luck
You can't compare STR numbers to traditional rentals. STR numbers should always be higher. They are much more time intensive. Also STRs aren't always legal or able to be done in certain markets.
And like I said you have to include principal payments to your return numbers.
- Member since 2019 · 6 posts · 1 vote7y
Hey everyone. Great thread. I've been looking for a basic answer based on this type of investment. Is the goal here 1 of 2 things? @Cj
@Account Closed Either "profit/live off" the cash flow and accumulate enough of these properties that it "makes sense" or potentially break even and with time the property will appreciate and hope to sell eventually for a profit?
I apologize for a bit of a rookie question but with margins seemingly thin, wouldn't a correction potentially create problems where the cash flow doesn't even cover the basics and in this situation where there isn't much appreciation?
- 7yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
Originally posted by @Syed H.:
Originally posted by @Dan H.:
@Account Closed If you can self manage 20 of these you are still only at $4K month. That will likely be close to a full time job and not a good paying one. Lets say you really want to work this and you can self manage 30 of these then you are up to $6K month, still not a good paying job. Lets say you want to work very hard and can self manage 40 of these for $8K month, still not a great paying job.
If done properly & efficiently, you can easily self-manage with less than 10-20 hours/month on average.
How many units do you think you can self manage at 10 to 20 hours/month? We spend enough hours managing our units that my wife qualifies as an RE professional (>750 hours/year). Some of this is that we purchase value add properties, but most of it just general rental managing activities.
So I self manage 21 units right now. I am 2 hours away from the properties. I spend 10-20 hours/month on average including my 4 hour roundtrip drive there. The only reason I spent closer to 20 some months is when I'm dealing with city inspections and/or new acquisitions.
I believe I can manage 50-60 units like this with minimal extra hours, goal is a few hundred tho.
The key is to build systems. Spend the time to track the rents correctly, get a PO Box for rent, get 2-3 handymen close by, have them send you pictures of any work done, focus on mitigating vacancy & turnover.
Your being very efficient with your management. We have about the same number units but do not self manage all of them (we self manage almost all). We have fairly efficient processes that works until a larger item occurs (this month it was a shower pan failure). Between the two of us we are likely close to 1000 hours/year and more if we perform some large value adds.
However, lets use the 60 number of units you provided (the higher number from the range you provided) at $200/month. Cash flow would be $144K/year but you have a lot of capital invested that if even in a passive investment such as the S&P would provide return on that money. Lifetime S&P return is just below 10%. If we use $10K invested per property (20% of the lower of the OP price range) and a 10% S&P return (approximate lifetime rate of return of the S&P) would produce by $60K. So now you are managing 60 properties for $84K ($144K - $60K) above an easy passive investment.
That is not for me. I strive for about that return year 1 of a single purchase and mostly have achieved it.
My view is the OP either has to increase his cash flow significantly ($400/unit could work) or invest in a locale with historical appreciation that is above the inflation rate to obtain a return that is likely to be impactful to his life. Adding in some value adds for one time increase in return (difficult via turnkey) could also help make an impactful difference.
Simply managing units at $200/unit per month will not get him very far unless he goes true multifamily (A 50 unit apartment at $200/unit would provide a meaningful return and can scale).
Yes so you make $84,000 for a 240 hour investment per year according to my numbers. That's $350/hr. That also doesn't include your principal payments and any potential appreciation. But let's say theres no appreciation for simplicity.
My principal payments are probably $75/unit/month.
So you get $275/unit/month = $198,000. 198 - 60k (s&p investment) = $138,000 for 240 hrs = $575/hr.
I'm returning 18% right now COC with 25% down on a 20 year amortization. Soon I will refi and take out all my equity. After that point I outpace any index fund because I have cash flow with $0 invested. But I never count on this because you are beholden to the debt market.
Now I agree with you large MF is much better. I invest in small MF for a variety of reasons(3-15 units would be my ideal). I stay away from SFR, but it does work as long as you properly account for Capex.
Also my goal is to eventually bring in staff in-house and grow to 200+ units.
Do you have or see investments that net you $400/month? I'd be curious to see them. Like I've said before, in todays market I haven't seen an accurately underwritten market deal that you nets $400+/month. At least not in a decent market.
>Do you have or see investments that net you $400/month? I'd be curious to see them.
Almost all of our units have cash flow greater than $400/unit but I will refer you to our best: 732 Jamaica court, San Diego (
https://www.vacasa.com/unit.php?UnitID=2086#ratings). Purchase $375K, Rent averages $15K/month (including the vacancies (very few vacancies): higher rent in summer, lower rent in winter) STR but duplex so 2 units so divide rent by 2 to obtain per unit rent. All investment extracted long ago. I invite you to calculate the cash flow using any reasonable expenses that you desire. Use a high PM fee because it has a high PM fee (worth it). I project the cash flow to be ~$5K/unit month (~$10K/RE month), this leaves $5k/month for maintenance, cap ex, PM (high fees but worth it), utilities, STR taxes, and misc (book keeping, rent unit tax, etc.).
But the CF is also not a zero appreciation area. We purchased a RE (1424 Juniper, Escondido) that we projected initial CF at virtually $0 but it had a good value add. The purchase was $390K. Between the value add and the market appreciation, the value has increased by ~$200K (about half of it via the value add). We refinanced out most of our money (if we refinanced it today we could get out all of our money). It has cash flow lower than $200/unit (using my conservative numbers) but in 5 years we made ~$150K via the value add and appreciation (the rehab cost ~$50K). It would take a lot of years at $200/unit cash flow (this is a duplex so $400/re) to equal $150K ($150000/$400/12 = 31 years). I also expect the rent to go up ~$100/unit ($200/RE) at the next rent increase which will help our worse cash flow RE (to ~$300/unit cash flow).
$200/unit cash flow for small number of unit RE with no appreciation and no value add will not get most people to their goals. Find value adds, a little above inflation historical appreciation, and/or double the cash flow per unit and that can get people to their goals.
Good luck
You can't compare STR numbers to traditional rentals. STR numbers should always be higher. They are much more time intensive. Also STRs aren't always legal or able to be done in certain markets.
And like I said you have to include principal payments to your return numbers.
Our STR uses a PM so it does not take more time than our LTRs but I do agree that it is not an apple to apple comparison which is why I also included our worst cash flow RE which is an LTR and I project the cash flow at just below $200/unit month (post rehab, my initial projections had cash flow projected at neutral before the value add). But the low cash flow of those units gets a big assist in the overall return due to the outstanding historical appreciation (~$100K of market appreciation - not counting the value add) in 5 years since purchase. In addition, we purchase properties that have a value add opportunity to achieve an early equity increase.
Our LTR units cash flow from just below $200/unit to almost $600/unit (the STR, even as an LTR, would cash flow more than $600/unit month) but they are in a historically high appreciation market. None of them cash flowed at time of purchase as they do today. I expect a year from now their cash flow will each be higher than it is today. 5 years from now I expect the RE with below $200/unit cash flow to be above $400/unit cash flow.
A $200/unit month cash flow with no appreciation will have a $163/unit inflation adjusted cash flow 10 years from now (used 2% inflation rate). It is my contrarian opinion that it will be tough to achieve a return that can have a positive impact on a life with $200/month cash flow, no appreciation, and no value add. My opinion seems to be the minority view so ...
Good luck
- WorldWide · Member since 2016 · 1k+ posts · 1k+ votes7y
either i didn't have enough coffee yet, or simply don't get Dan's numbers and what purpose the S&P comparison serves here. OP, from what he claims, doesn't have even close to $10k invested per property. More like $3200 (@75% c-o-c on $200/mo cashflow), which in a perfect scenario he gets back within 1.5 yrs or less, then his return becomes infinite (again, if everything is perfect).
- Chula Vista, CA · Member since 2017 · 195 posts · 104 votes7y
@CJ M.
That's amazing. Most turnkey providers I looked at listed at or above market making them difficult to cashflow.
Nearly infinite return sounds good to me. I'd love to get that.
Congrats on finding the end of the rainbow!
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