How to get $200/door cash flow with the 1% rule?

[Neel P.]

Hey everyone,

I’m relatively new to real estate investing but really excited to start getting into some cash flow properties.

I’ve been analyzing deals in Kansas City, MO and am using the goal of getting $200/door in cash flow in my model. I’ve heard this number thrown around (typically it’s even higher) for what people look for in deals.

The problem is, all the math I’m running on my model is showing up as LESS than $200/door even when I’m hitting the 1% rule in rent and putting only 20% down.

Am I doing something wrong with my math?

Example unit below:

Quad for $360K

Rent Roll: $3600/month (1% rule)

Vacancy: 8% ($288/mo)

Maintenance: 5% ($180/mo)

CapEx: 5% ($180/mo)

Property management: 8% ($288/mo) + leasing fees ($30/mo estimated)

Prop tax: 1.35% ($4860)

Insurance: $2000 on a quad (estimating)

Loan payment: $1392/mo (4.1% interest rate)

FINAL CASH FLOW: $732/mo.

It’s not far from the $200/goal, but this is assuming everything fits my model perfectly. Rents are already priced at the top of market so they can’t go higher.

How are people getting OVER $200/month? I hear stories on here of people saying they would never go under $250/door...how is that possible with the 1% rule?

Am I looking at this math incorrectly?

[Eric James]

You're correct. And actually, some of the estimates could turn out to be low (capex, maint, PM). A lot of people either don't figure some of these expenses into their "cash flow" estimate, or they just want to brag and make a cash flow number up.