It seems as though a lot of BP investors strive for $100 cash flow per door. I personally don't see how the math works over the long haul. Fact is an unexpected repair such as a flooding of a basement, a tree falls down after a storm and you need to pay someone to haul it away and taxes go up due to appreciation. Here is a real situation that is happening to my duplex investment and many others across the country. Because the housing market is exploding all over the country, property taxes are going up along with inflation. Houses in South Minneapolis for example have appreciated 22% to 35%. So this means the city and county are able to raise taxes. Mine jumped $1,100 in one year. This is completely justified by the city because of the value of my duplex. The problem is that now I owe $91.00 more on taxes, which takes my $860.00 monthly cash flow down to $769.00. Imagine if your duplex or other multi-plex is hoping for that $100 a door and suddenly your taxes are costing you an extra $91.00 a month. That leaves you with almost nothing for cash flow. So I personally don't think that number ($100 a door) is a wise figure.

When $100 a door becomes a risky proposition

Attorney, Investor, Syndicator · Minneapolis, MN · Member since 2016 · 43 posts · 40 votes

Yes! Back in 2008-2009 when prior rapid appreciation had resulted in tax increases, many of us experienced severe hardship, and a family member ended up in foreclosure. The appreciation preceding the bubble burst meant that taxes were at their peak when nobody wanted to buy and renters scurried to move in with family and friends, gutting the rental market. So @Marcus Johnson you are exactly right. $100/door is only good if you have a LOT in reserve. And I don’t mean large equity or lines of credit; I mean liquid reserves you can tap no matter if credit freezes over again.

2 Reply

Paul Bowers

Real Estate Investor · Macedon, NY · Member since 2016 · 251 posts · 290 votes

9y

Wouldn't rents also rise as cost of purchasing homes rise?

5 Reply

Justin Fox

Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes

9y

It works as long as you can raise rents in the amount of the increase. If you can't, you sell and capitalize on the appreciation.

1 Reply

Marcus Johnson

OP

Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes

9y

@Paul Bowers

I appreciate the response and yes that can be true in many markets, but since it's such a thin margin your playing with a deck of cards. In my market my rents haven't gone up enough to cover that $91 a month increase and I charge very competitive rents for the 2 units. Luckily, my margins are large enough so that I don't feel the pain as much.

1 Reply

Andrew Johnson

Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes

9y

@Marcus Johnson I completely agree with you on $100 not being a wise figure. However, it is a little easier to stomach when you're talking about multifamily properties. That flooded basement, tree limb falling, etc. will likely only impact one of your units. If you have tons of tree limbs falling on lots of units, that's less "random" and more of an issue around deferred tree-trimming maintenance. So the other units (with their cash-flow) can financially support that random tree limb. And with multiple units you have 12 months leases ending with some degree of regularity so you can edge up those rents to help cover those added expenses.

1 Reply

Deren Huang

Real Estate Agent · Tulsa, OK · Member since 2016 · 408 posts · 242 votes

9y

@Marcus Johnson

I think there are different criteria when it comes to the 100 dollar per door. Depending on the financing and the amount actually invested. They all come into play: if you refinance and you actually pull out 10k, maybe 100 doesn't seem to bad, but if you 25% down and are only getting 100 dollars....

1 Reply

Marcus Johnson

OP

Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes

9y

@Deren Huang

I get it, but for me as an investor I don't want to be in the red each month on a property that is just appreciating at that point. I didn't go into investing to pay the mortgage on my investment properties, it would be like getting a negative interest rate on my Roth IRA over a long term.

2 Reply

Deren Huang

Real Estate Agent · Tulsa, OK · Member since 2016 · 408 posts · 242 votes

9y

@Marcus Johnson

I totally agree, no one wants to be in the red each month and only banking on appreciation to make money, (in some markets though, that can be a legit strategy)

I think the scales of economies/averages work here in your favor. That's why so many people push multi-family, and bigger pockets does a decent job trying to educate calculating vacancies/repairs/capex.

0 Reply

Linda S.

Investor · Richmond, VA · Member since 2016 · 1k+ posts · 2k+ votes

9y

@Marcus Johnson,

I 100% agree with you, $100/door sounds silly to me. I just spent $350 on a plumber the other day, how much would that suck to knock off 30% of my annual income, with just 1 service call? Doesn't need to be catastrophic to hurt you, any service call will take a big chunk out! I think it all depends on individual situations, risk/reward, but at the end of the day, I'm with you-- $100/door won't cut it.

0 Reply

Matt R.

Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes

9y

I think the $100 per door rule was only meant to apply to multis.

1 Reply

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

9y

Profit in real estate comes from (1) cash flow (2) equity accumulation and (3) property appreciation. Talking about one without the others is not meaningful (not to mention financing differences). $100/door on one property can have a dramatically different IRR than $100/door on another property.

@Linda S. the $100/door figure that investors use includes those $350 service calls...it's after all vacancy, expenses, cap ex reserves, etc.

8 Reply

Kuba F.Pro Member

Real Estate Investor · Los Angeles, CA · Member since 2013 · 2k+ posts · 694 votes

9y

For a SFR rental $100/door is silly as the economies of scale simply aren't there.

1 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

9y

The reality is that no investor knows what their true cash flow is until the day they sell a property and do the accounting back to the day of purchase.

Investors build "unexpected repairs" into their estimated expenses. You may not know what they are going to be but you should have a good idea of what they might cost and budget accordingly. Unexpected repairs are in fact expected and therefor budgeted for in a realistic manner before throwing out numbers like $100 cash flow. If a investors cash flow guestimates do not account for the unexpected they really have a lack of understanding of true cash flow.

At purchase your projected cash flow needs to be extremely conservative including a large "unexpected" budget. This is the primary reason SFHs do not really cash flow in the vast majority of areas. They simply do not have enough potential cash flow to cover the unexpected.

2 Reply

Linda WeygantPro Member

Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes

9y

Originally posted by @Paul Bowers:

Wouldn't rents also rise as cost of purchasing homes rise?

Sort of. Here in Denver, purchase prices rose an average of 11% per year for the last 4 years. Rents kind of rose with it, but rental rates have stabilized this year while purchase prices continue to climb.

I have 4 condos that I bought in 2014 at $88k, $107k, $121k and $127k that all rented out for $1250. Comps in the complex are now selling at $145-$150, but I still can't get more than $1250 out of them.

Podcast Guest on Show #244

2 Reply

Devin Deswert

Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes

9y

Ya a 100 dollar a door is a really bad place to be I think, you can almost argue it's worse on scale. But guess it depends on your risk tolerance. As my doors go up so does the amount I cash flow. More tenets = more risk. More assets that break/wear = more risk. I need to get paid for risk. If your into building and working systems you can make more at the craps table per night with far less risk then REI at 100 per door. Which strangely enough builds and scales a little bit like real estate, especially if you are a come better and stack odds... anyways moving forwards. Let's say rents are 1200 a month and you set aside 10% for cap ex. That's only 120 dollars a month. It will take 5 months to cover a water heater. On 900 sq feet it will take you roughly 10 months to cover new carpet. A new central ac unit? Well that will take you roughly 41 months. Clogged toilet ya you can expect that to eat up a months worth of cap ex. Garbage disposal that's 4 more months of cap ex. Not even getting into things like appliances and structure. I'm sure I will get responses like "I do all that myself so it's cheaper" or " I sell before stuff breaks but after I've gotten 3000% appreciation" well you guys are neat.

1 Reply

Zack Bloom

Greenwich, CT · Member since 2017 · 30 posts · 9 votes

9y

I totally agree, $100/door is pretty arbitrary. What's worked for me is to look at an existing property I've had, do a worst-best case scenario based on things like that changed over the years then see if it does well enough that I can go without a tenant for 3 months without having to pull money from other properties.

0 Reply

Lesley Resnick

Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes

9y

$100 a door seems pretty skinny to me unless there are a lot of units or you paid very little for them. I goal is to be around $300. I have owned some of my properties for a while and inflation has helped. Others, I bought right.

Perhaps it is time to sell the property?

0 Reply

Shawn L.

Rental Property Investor · Natick, MA · Member since 2015 · 128 posts · 188 votes

9y

I agree overall with the sentiment that $100/door seems slim, but as @Mike Dymski stated evaluating cash flow in a vacuum is not how it should be done. The investment as a whole needs to be evaluated to determine its viability.

Also cash flow needs to be calculated after all opex/capex/debt service, which needs to include those $350 service calls. Obviously this can be tough to forecast but these expenses need to be anticipated and budgeted for.

0 Reply

Javier Sanmiguel

St Paul, MN · Member since 2016 · 38 posts · 12 votes

9y

At the end of the day what I feel is most important when analyzing a deal is accurate numbers and a good Percent on CoCR. If the return is 12%+ and it translates to $100 it MIGHT be a good deal. But if $100 translates to 2% return, then it might be better to invest in Billy's Lemonade stand across the street.

0 Reply

Amy Webber

Investor · Simpsonville, SC · Member since 2016 · 135 posts · 73 votes

9y

@Mike Dymski @Shawn L.

I agree with Mike & Shawn - the $100 a door is AFTER all the expenses including vacancy, repairs, capex reserves, property management etc. are included.

If the $100 a door is just after PITI, then you've got a problem because not all expenses were calculated/estimated correctly during the acquisition.

0 Reply

Marcus Johnson

OP

Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes

9y

So generally speaking if you're investment strategy is using the $100 a door, then it makes sense to have either a lot of units in a large multiplex or a lot of duplex's to cover expenses that might occur. So for example if you have 5 duplexes and one of them are taking a financial hit due to a maintenance expense that is larger then what you capexed (if that is a word) or for taxes that went up due to appreciation, then hopefully you have enough funds from the other 4 duplexes to cover the 1 duplex that is in the red.

0 Reply

Marcus Johnson

OP

Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes

9y

@amy webber

IMO, you can plan for as many capex exenditures, repairs and unexpected disasters such as a basement flooding or an increase in taxes, but because not everything is completely predictable, you may run out of funds quickly or take a loss on the property for years due to the fact that your capex calculations were off.

0 Reply

Chris H.

Investor · Spokane, WA · Member since 2012 · 71 posts · 24 votes

9y

The value of $100 per door depends heavily on the circumstance.

It should be after PITI + 10% property management + 10% maintenance reserves, IMO.

I always do 80% of rent minus PITI and consider that my profit margin, these days. If I self manage, that's gravy.

Would I do $100 per door in that case? Maybe. Really depends on the ratios, which determine your risk.

For example: A rent of $1500 on a house with a $1100 mortgage? I'd be unsure. You'd have a $250/month cashflow after your property manager. Every vacant month blows away 4.5 months of your income! That's a high risk one for me.

But, a 5-plex of $600/mo apartments with $100 cash flow each? Every day.

1 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

9y

Numbers run different for different areas and situations . For me , $100 a door even after all expenses wouldnt be worth my time and especially the agrivation factor

1 Reply

Vivek Khoche

Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes

9y

@Lesley Resnick - $100 a door investor either knows the game or does not know anything. Army of layers have helped him with the dream. If someone has paid 30% - 50% more on $60K - $70k properties there is no way they can sell. A simple test is to try selling your one or all properties.

The following link is bit long but tells the investor journey true for most of the investors.

https://www.biggerpockets.com/forums/311/topics/22...

Good Luck Investing

Vivek

0 Reply

When $100 a door becomes a risky proposition

When $100 a door becomes a risky proposition

Most Popular Reply

26 Replies