Is there a rule of thumb on how much to net per unit?

Question

I currently own a 4plex in central WA state and a SFR in Michigan. I am looking into some larger residential properties in the area. My question is: Is there a good rule of thumb you use when researching potential properties on how much net profit you will make per unit? I understand it could be different for each investor, but I am curious about what some other investors think. Thanks in advance.

Jon Holdman · Answer

Maybe. Maybe not. A tenant is a tenant and requires about the same amount of effort whether the rent is $500 or $1500.

Its also much easier to extract $100 in true cash flow out of $1500 in rent than it is to get that same $100 out of $500 in rent.

Keep in mind that $100 assumes 100% financing. If you have a down payment into the deal, you want more cash out. Otherwise your money is working for little or nothing. If you pay cash, for example, you should expect to get considerably more than $100, unless you're buying very cheap properties.

Michael Kohlhoff · Answer

no this would be with a 90%LTV and assuming a 5% vacancy along with the other associated expenses.

Rich Weese · Answer

Your net will change significantly based on % financed. Are you talking zero down or no mortgage? I don't get anywhere NEAR $230 per door on 154 units in Dallas, but I'm extremely happy with only TWO vacancies. Rich

Michael Kohlhoff · Answer

Keith , thats kind of how i see it . the price per unit is around 45k and with what i think is pretty close estimations on the budget puts me around 230 per door net.

Keith Barton · Answer

Any positive number is a good start.

Any amount more specific (or even ballpark) really depends on 1) your comfort level,
2) your goals,
3) the accuracy of your expense budgeting; and,
4) the accuracy and consistency of your budgeting for repairs, improvements, emergencies, & vacancies, etc....

If all you ever buy are properties with positive cash flow from day 1, you determine your income by the number of those properties you buy.

Have negative cash flow properties? That's OK, just make up for it in volume.... ;)

Hardik Patel · Answer

shouldn't it be based on price/unit? isn't % more relevant as far as return is concerned as unit price cost different for different types of unit and in different part of countries?

Michael Kohlhoff · Answer

i have nothing but problems with the Michigan property. i do not suggest it unless you have very good management and a willing to gamble .

Gilbert Ryan · Answer

If i have no skin in the game, then i am glad with any return as long as i have very good cushion to pay all expenses.

How is Michigan, by the way? I keep getting deals with unbelievable numbers. The state keeps losing people i heard!

Michael Kohlhoff · Answer

so 230 is right on then :-)

Bryan Hancock · Answer

Most folks aim for $100/door/month.

Is there a rule of thumb on how much to net per unit?

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