Buy and Hold Investors

[Quentin Forbes]

While aiming to becoming a successful wholesaler, I want to tap in and find out what most buy and hold investors looks for in a potential rental property.  What formula is used to figure out numbers that will generate cash flow? Considering repairs and expenses.

[Jonathan Safa]

Quentin Forbes makes perfect sense. 1.75 percent is completely arbitrary and may not make sense for other people. But allow me to describe the situations and logic behind my arriving at that specific number.

When I am reviewing any property, if I have a set number in mind (1.75%) I am able to toss properties or know what offer I want to put on a property very quickly.

For me, it is 1.75% for the following reasons:
A Home is currently listed at $50k, for instance. Properties in the neighborhood I am looking at typically will have rehab costs of around $20k - $35k. So before looking at any numbers very closely I know that I will have to rent that property at $875 (50,000 x 0.0175). If I then put $25,000 into the home to rehab it in order to get it to the rental value of $875, but my total in would be $75,000 for the purchase and rehab of the property. Now I am closer to almost 1%, instead of 1.75%.

Now, factor in mortgage, insurance, vacancy rates, capital expenditures, closing costs, and you are eating into your $875 rental income. And with the houses I am looking at, in the area I am looking at, anything less than 1.75% I am eating into positive cash flow. Additionally, 2% homes are very unlikely to find in my area. Thus I personally have arrived at 1.75% being the magic percentage where deals are likely to happen.

Over time, you will find your own percentage that works for you.