Buy and Hold Metrics

[Keith Baird]

Morning All, I run a RE Dev firm historically focused on rehabs and ground up. My highest priority 2015 goal is to aggressively build my rentals portfolio. I operate in the Boston MA area where you will pay 500k for a subsidized 3 fam (at a minimum). I would love to hear everyone's favorite metrics for analyzing buy and holds. Looking forward to hearing your input. Thanks, Keith

[Jeremiah B.]

I try and keep it simple, and just use a few:

1: Projected cashflow over the next 5-years (dollars per year). This is simply monthly rent minus projected vacancy, minus expenses (PM, repairs, capital, etc.), minus PITI. DO NOT assume increases in rents in this projection.

2: Cash on Cash return (percent per year).  Take the cashflow metric and divide by the total dollars you have invested in the property to buy and fix it.  Include closing costs.

3: Ideal Month Income. This is not a great metric, but has been helpful during the rapid growth periods. This is simply what you would make if nothing went wrong (gross rent - PITI and PM). This will not tell you if you will be profitable, but is a good way to track your growth year-over-year during rapid growth phases.

Happy hunting!