My Investment Strategy

[Neil Whitney]

I closed today on a four unit townhouse. Most questions I get from people I talk with is how do you know if its a good deal or not? I use a simple formula to determine for me in minutes weather to pursue the property or not. This is my criteria for me, i am sure others have there own "style" of investing, would love some feedback.

1. Property should generate at least 1% in rent as to purchase price. buy a property for 100K collect 1K month minimum. This property is 207K and is currently getting $600 monthly per unit, $2400 month total. 1.1%

2. Determine PITI on property, this property is $832.47 Principal & Interest, $192.16 Insurance, $272.75 taxes, totaling $1297.38 per month payment. $2400 rent - $1297.38 PITI = $1102.32 remaining

3. I put 40% of gross rents ($960) into savings account until I build a 10K reserve. This is to account for vacancy, repairs, management (even though i self manage i likely will not in later years) and capitol expenditures. If i use any reserves i simply let it get back to 10K and then bank my profits again for my next property. Assuming no issues the first year, reserves would be met in 11 months.I have done this for all of my properties and have replaced everything from roofs to hvac systems to bathroom remodels. has done very well for me as i have purchased 12 doors ( 2 fourplexes, 1 duplex, 2 single family) in less than five years.

4. Whats remaining is cashflow $142.62 per month if you have zero reserves, once reserves are met (I have it already) $1102.32 per month ($275 per door). I need $100 per door on my properties. My criteria is that all must be met or I simply move on to the next one.

5. There is opportunity here as rents are below market, i will raise them in the spring to $700 per unit increasing cashflow to $542.62 before reserves, $1502.32 ($375 per door) after reserves.

6. Buy more properties, it creates a snowball effect and reserves are filled rapidly, one or two months. I currently cash flow (after reserves) $3335 per month not including todays deal. $4437 with todays deal before rents raised, $4837 after. I also spend very little from this money as i am rolling it up to buy another property, we celebrate some, had a great dinner tonight, my annual minutes meetings are done in a tropical environment (mexico). Likely I will stop at my ten mortgages ( I currently have 6 including my own home) and then use that money to pay off a mortgage and then buy another property. Rinse and repeat...