What Numbers Do You Use for Potential Buy and Hold Properties?

[Jon Adamowich]

Hello all, I'm new here to BP and I'm in the beginning stages of purchasing an investment property. I'm currently house-hacking and saving up to purchase a property to rent out; I currently have about $16k in savings and it's growing. I'm curious as to the numbers everyone uses to determine whether or not a potential property will be a good deal for them. Aside from mortgage, taxes, and insurance, what other numbers do you use to calculate expenses? What would you consider to be sufficient cash flow for a single family/duplex/triplex? 

Ideally, I would finance the house with a 15 year mortgage and my down payment would be 20%+ so that I could avoid PMI. I was originally waiting to save up $25k-$35k before really searching for a property, but have seen properties here and there that MIGHT work with the money I have saved up now. I am trying to invest in the Buffalo, NY area.

As someone who is new to real estate, any insight/guidance is very much appreciated. I have a lot to learn! 

[Timothy Smith]

@Jon Adamowich and @Adam Wigdorski, I really hope to meet up with you both eventually. I read one of Adams post a while back introducing his properties and process, and one of the takeaways is -- and Jon, this is important to acknowledge -- this is what works FOR HIM. He knows the area, he is close to his units, and he can make it work beautifully for him. This is awesome! But...just because the model works for him, doesn't mean it is what you should be compelled to do it. I personally would never spend that much on a duplex (aside from the one I did because I hit a 1031 deadline and it's zoned that I can build another multi-family on the same lot) but it works. $1500/mo rents in North Buffalo originally shocked me, but it is a family friendly neighborhood that benefits from the explosion of Hertel Ave. However, I also think that rent range is volatile in Buffalo should/when the next market downturn take place, as the folks paying $1500-1800 may be looking for $1000-1200, but that is really tough to predict. All the new development along Niagara Street, for example, with rents $1800+ is a tough pill to swallow, but I'm watching it closely to see how it pans out. I hope for our sake (and Buffalo) that it is successful.

By comparison to those $200-300K duplexes, my best performer is a South Buffalo duplex that I was all in at $105,000 purchase + rehab. Its NET cash flow is $900/mo. I nearly had a perfect BRRRR before I even knew that BRRRR was a thing. It is a true unicorn and I wish I could copy it 50 times. Looking at re-appraising it soon for some truth, but I don't expect it to top $120K.

I feel it apropos to acknowledge your comfort level and lifestyle goals. Some folks talk about house-hacking (which, again, I fell into by accident myself) and lay out these crazy inconvenient things like turning a living room sofa into their bedroom and renting out the rest of the house. Maybe that would have worked for me a decade ago, but not now. I'd rather my family enjoy our own four walls and space, and have a slightly slower growing process with my properties than be a "prisoner in my own home". However, if you can make it work for you and pursue it like an adventure (cue the BP podcast with Jocko Willink) then more power to you!

The beauty of it all is that you do what works for you. The most important thing is that you do something! Oh yeah, last thing before I turn in -- Adam makes a great point about the ~$50k houses. They are not in areas you may want to live in, and/or require a LOT of work. If you don't feel comfortable in the area and don't have the rehab knowledge yet, saving up for something a bit better is a good idea. One of my last projects was a $64K duplex purchase that needed nearly $80K in rehab to stabilize. It still performs well, but not as well as I originally projected. However, the saving grace there is the rise of the neighborhood values. 

There is definitely something to be said for quality, as it will probably yield less headaches down the road.