Please help me analyze this TurnKey

[Jean Santiago]

https://www.biggerpockets.com/...

I have been using the rental calculator, and hopefully i'm putting in the data correctly and conservatively. When i generate and look at the report, what are the main things i should be concerned about? What numbers on average do you guys like to see when you analyze rental properties?

Such as:

1. What average amount of cashflow are you targetting?

2. What cash on cash ROI are you targetting?

3. What Cap Rate are you targetting? 

4. Do you guys try to follow the 2% Rule?

5. Also, what is the 50% Rule Cash Flow Estimate?

I just really want to understand what the report is telling me, and what areas (cash flow, cap rate, cash on cash roi, 2% rule, etc.) i should be most concerned about when analyzing a rental property. 

Thank youBP Community! Any advice, criticism, and answers are much appreciated! :)

[Jean Santiago]

Originally posted by @Taylor L.:

Originally posted by @Nicholas L.:

@Jean Santiago I'll take a run at your questions.

1. What average amount of cashflow are you targetting?

I have a condo I break even on (since it wasn't purchased as an investment, but I'm not interested in selling it); a condo I make ~$375 on after all expenses, and a SFH I make $300 on. For my next property, I'm going to try to BRRRR to pull all my cash out and I'm targeting cash flow of $250 a month.

2. What cash on cash ROI are you targetting?

I purchased two properties with conventional financing before learning more about investing on BP, and my cash on cash return is terrible (even though the properties cash flow well.) For my next, I'm less worried about the cash on cash return, and more focused on trying to predict the ARV accurately so that when I refinance I get most or all of my cash back out.

3. What Cap Rate are you targetting?

Cap rate is typically used more for multifamily properties rather than single family, but you can calculate it if you want.

4. Do you guys try to follow the 2% Rule?

I am not looking to purchase in markets where the 2% rule is possible, so for me, the answer is no.  This is going to vary by market, and even in markets where 2% is possible, you may be looking at C or D class properties.

5. Also, what is the 50% Rule Cash Flow Estimate?

This is a "rule of thumb" that says that 50% of your gross income will go to expenses, excluding the mortgage.  In your example the cash flow was pretty similar based on the two ways of calculating - $23 vs. $115.  That's pretty close.

Hope this helps.

Just chiming in on the cap rate comment to agree. Cap rate doesn't apply to single family properties unless you're talking about a portfolio. Brokers and realtors have started trying to apply it because in many cases it allows them to justify a higher price than the property is really worth. 

Cap rates aren't targeted per se in the same way that other metrics are targeted. Cap rate is driven by the market, as it is the multiple of cash flow that the market is paying for a particular property or set of properties. You may aim to buy for 50 bps over market cap, but targeting the cap rate itself is not really the right metric. 

Focus more on things like cash on cash return, IRR, monthly cash flow, things like that. Those include cost of debt.

 Thank you! And yes when i was reading the report, i really didn't know what Cap Rate was. Thank for explaining! Stay home and stay safe!