Questions about what metrics to track

[Timothy Gerdes]

My brother and I own 4 different multi-unit (2, 3, or 4-unit) homes in Michigan.  We have purchased them over the last 4 years or so.  We kind of jumped into the whole thing without doing a ton of research.  I feel like the first two purchases were amazing deals (super cheap houses), while the last two are probably below average purchases.  

I'd like to get some statistics on how good these investments actually were so I can determine if we should continue buying more houses (or even sell and get out).  What metrics should I be tracking/calculating on these houses?

[Tim VandenToorn]

@Timothy Gerdes  I tend to disagree with @Cory Mccarthy on this one. 20% is certainly not the norm in Grand Rapids,  and if you are getting 20% on your purchases then we definitely could do a lot of business together.

If a property is rented for 800.00 with annual taxes of 1,100.00 vacancy of 7%, no management fees, annual repair on maintenance of 10%, and $540.00 for taxes, you can spend 54,780.00 on a property and get a 10% CAP.

In order to get a 20% CAP using the same numbers you would have bought this property for 27,000.00.

These opportunities are simply not available in 2015. However if they are I have buyers looking at properties in the 9% CAP range. That means the property you bought fro $27,000 can be sold for $61,000 using all the same numbers, and of course no management fees. (numbers are rounded)

Be sure to evaluate every aspect of the property.  If the property has carpet, wood siding old windows etc., raise your annual repair and maintenance expense.  I use 10% for any property that I completed a full remodel on.  If the property has not been remodeled or has a current tenant in when I purchase it, I raise this percentage, to plan for a expenses when there is a turn over knowing I will want to give it a face lift at the minimum. 

I also think wither your using property management or not you should always add this expense into your equation.  Even though you don't use property management today if you continue to purchase and your portfolio grows someday you will be using a PM.  If you are buying houses and not using a number for PM someday when you do use a PM your numbers are going to drop.  You might as well add expense on the front end.

Contact me if you want to sit down.  I would love to evaluate your numbers.