How do you look at cash flow?

[Account Closed]

Hey BP. Currently I'm close to putting my first SFH under contract. And I plan to stay in the SFH field until for a few years. I want to get well established in SFHs. After I've grown my portfolio with houses and feel I'm ready to start looking for apartment complexes I'll stop. since I'll be in the single family field but want to head to multi family, I have a question. Since I'm buying SFHs it's easy to determine my cash flow (after debt services, maintenance, repairs, capex, vacancy and property management). It's a single unit. I deduct all my expenses and once I've grown my portfolio I can easily look at what's my actual cash flow (after expenses) per unit. More importantly, I look at my ROI. As we all know, I can be cash flowing $300/house but what does it really do for me if my ROI is 3%? So, my question is, how do you look at cash flow for multi family? Can you still accurately look for any $/unit? 200/unit? Or do you aim for a certain ROI percentage? Any kind of "rule of thumb"? With houses I aim for 200 minimum after expenses. 220-250 preferred. My houses purchase price is roughly $55k. With 20% down its nearly $11k. After all expenses I'd be getting $220-$230. Not bad. Easy to calculate. So I aim for a certain dollar amount for cash flow.. But t also has to fit my ROI requirements. But any experienced large multi family owners, how do you look at it? What sort of cash flow would you expect out of a B class 100 unit property relative to where you look for these properties. With properties that fit my criteria I look for 200 cash flow like I mentioned. So I'm just wondering if you can look at apartments that way. Sorry for a lonnnng question but I tried to be as detailed as I could. I see a lot of people ask really basic questions like "how much cash flow per unit is good" but don't specify the condition of the property, price, or location. So again, sorry lol. I look forward to chatting with anyone about this. Have a good day BP!

[Mark Mosch]

You can't be so simplistic on multi-family.  There are so many variables.  You only can look at the pro-forma cash on cash return, and then balance that against the risks of the area.  First you need to REALLY know what the costs will be.  If you are going to manage it yourself go over the trailing 12 month financials from the owner and look at every item to see what it would be under you.  If you are hiring a 3rd party management company to run it (which i recommend in case you want this to become your business - so you can scale) then work with them to create the pro-forma.  Then you have to decide after everything, what % return do you need?  Most investors like 8-12% it seems.  In hot areas like LA you can't get that - people are getting 2% cash on cash and counting on the property going up in value to get them most of their return.  We have some properties in smaller areas like Northwest Arkansas that make 20%+, but they don't go up in value as fast as the hot areas like California.  But my point is just stop thinking about that "$200 per unit is good" thing - really extremely simplistic and can quickly lead you into trouble.  You can buy multifamily for $200,000 per unit, and for $10,000 per unit.  Is the $200 per unit good on the $200,000 per unit property?  Of course not.  Anyway - do the full analysis, then jump in.  Don't expect to be perfect the first time but the more you do the better you'll get.  Good luck!