Really stuck and frustrate with my analysis, could use advice...

[Brian H.]

Hey everyone,

So I am at a point where I am just really frustrated and honestly a bit burnt out.... and I don't even own a property yet!

So, here's my problem.

It seems like almost none of the homes I run analyses on will meet these suggest ROI's that I read about. 10%, 15% even! I rememeber more than one podcast where the guest mentions that they don't buy rental properties if they can't get upwards of 15% - 20% ROI on these properties. I have no idea where they are finding homes this cheap with rental markets that provide such high rental profits. Even getting upwards of 8% - 10% is seeming impossible...

Example:

There was a home for sale up here for $89,000. I spoke to two different people that work in the rental market up here and both recommended a rent of about $650/month for said property. With my calculations, that would have had a cashflow of -$26.72 and an ROI of -1.41%, That is with a traditional 30 Y mortgage and 20% down. Granted, I realize I could get it for less than the asking price of $89k but it still wouldn't bring in much of anything for me.

This is with 5% of the monthly rent for Vacancy and 5% for Repairs/Maintenance, 15% for CapEx, monthly property taxes (about $63), ~$50/month insurance.... and of course the mortgage payment.

There is a huge rental market up here and people seem to be doing well but I am trying to be cautious and take EVERYTHING into account, as I have learned from reading and then also being here on BiggerPockets.  How are all these other people making money on properties and I can't seem to find any that make any sense on paper?  

This isn't the only property, of course. I have analyzed maybe 30 properties since November... only a few would have worked, based on what I am calculating, but they were out of my price range.

Hope I can get some responses to maybe help me figure this out. It is really burning me out... :-/

Thank you in advance for any advice!

[Brandon Sturgill]

@Brian H. Focus on the numbers, absolutely, but don't let them get the best of you...forget about all the rules and what other investors are doing (these rules are really the source of frustration for a lot of investors unnecessarily)...your post is a bit all over the place, but that's OK. ROI is a general term...not an end all. If you are looking at SFR's, financial metrics like CAP rate are important, but they are not a determinant of value. If you are valuating SFR's focus on other long-term plays like debt pay-down, equity, and tax benefits...

Not discouraging your valuation..practice helps...but your vacancy loss is pre-determined as a component of GOI...it's not an operating expense...and capital expenditures are what they are...again, not an operating expense (and 15% may be excessive...).

PM me or feed me a couple of your property addresses and financials and I'd be glad to help you sort these out.