So what's your investment formula???

[Jason Gregory]

Hello,

I am a investor that has become a Realtor. I feel like I am very conservative when I run the numbers on a property. 

Example

A=$1200.00 Properties monthly income

B=$220.00 Monthly operating costs (property management, grass, and bug services)

C=$700.00 The total cost of mortgage; monthly with insurance

A-B-C=Gross monthly profit

or $1200-$220-$700=$280 of Gross monthly profit

$280*12 months= $3360 of Gross annual profit

Gross annual profit-1 month rent for cap X (A)= Estimated net profit

$3360-$1200=$2160 Annual net profit/Annual cash flow

$2160/12 months=$180 of Net monthly profit/monthly cash flow

OK, how is this equation similar or different from what other investors are using? I am interested because I work with a lot of investors, and it seems like everyone has their own calculations that they use. I am also interested in what is considered a good investment in terms of returns for you as an investor? I wish I had the ability to create a poll on here so I could create a better understanding of what investors really want. Because everyone says, they want 10%+ return, but what are you really comfortable with? Thank you for your time, those who are still reading.

[Mark Trebor]

I like your concise summary of your thinking.  Should help people starting out.  You can get lost in the woods with all of the terms but what you have written is the basics.  When I look for houses I now know that whatever the monthly rent is I can pay 100 times that for the house.  If the house is more then that I am not interested.  That's my version of keeping it simple.

But behind my simple version are the same basic numbers you use. But instead of 1 months rent for CapEx I use 15% (of revenue) for CapEx/Maintenance and 8% (of revenue) for Operations (accounting, advertising, house showings, etc.) I also always put 20% down so I don't take into account time value of money on that 20%. Keeping it simple has aloud me and my two partners to get to 19 houses (all rented to college kids). On those 19 houses we cash flow about 10K/mnth, I'm not retiring on that money but its a nice boost to my W-2 income.