First time rental purchase

[Andy Hughes]

I was wondering what people think the best KPI's are for evaluating and purchasing a rental property (SFM to small multi). I see a lot of sites using Cap rate and yields and all that stuff but is that really necessary for smaller rental purchases (not big apartments/commercial buildings)? It seems like focusing on CoC return, cash flow, etc are the things you should focus on. I have flipped a lot of houses but am a newbie into the rental market. Any insight advice for evaluating would be appreciated. I know there is a calculator on BP but I always like to understand the rationale behind the numbers.

TYIA

[Nathan Gesner]

I'm not a smart guy or a numbers guy, so I'll share my simple process. I want a property that rents for enough money to cover the mortgage, taxes, insurance, maintenance, property management, and set aside for capital expenditures. After all that, I want it to cash flow $100 or more. If I can find that, I'm a happy investor. Even if the market slows, I can still survive by losing the cashflow, maybe even the set aside for capex. The property continues to pay for itself. If I hang on for 10+ years, my cashflow will increase significantly, my equity will grow, and I will build wealth.

Real estate is pretty forgiving. Look at the old Landlords that started 30-40 years ago. They didn't calculate cashflow or crunch any other numbers. They bought a house, they rented it out, and they held on. Despite having noone to guide them and making many mistakes along the way, they're making good money and have lots of equity.