Book on Rental Property Investing: Chapter 5

I’m still working my way through Brandon’s book. My pace is not slow because the book is uninteresting, but because my life is crazy. I’ve had some momentum this month and are now in chapter 12, but wanted to revisit chapter 5.

Chapter 5 is about analyzing a rental property, and it has a lot of numbers that my accounting self likes to ponder and compare to. So let’s get to it!

Brandon uses 5-15% for repair costs. I’m including on-going repairs while the tenant is living there plus yard maintenance. Our properties are averaging 7% over the long haul, with a low of 4% and a high of 9%. I think our tenant quality creates the variety rather than the age of the property.

I don’t track cash on cash return, but I liked Brandon’s explanation and comment that the stock market averages 7%. The problem is (well, it’s not really a problem!) we only invested 51,000 of our own funds to generate an average of $17,000 per year. That’s a crazy high (33%) cash on cash return!

We are out of whack on the 50% rule as well, but I know why. Our expense, excluding the mortgages, are 30-40% of rental revenue. If we included CapEx at the levels Brandon mentions it would be 48-55%. We keep a large reserve and pay for items as they break rather than budgeting a replacement fund.

I liked how Brandon is trying to rename the 2% rule to the 2% test. I thought that 2% was very difficult to get on the west coast, so I was surprised to read that Brandon looks down on 1-1.5% properties. We started at 1% and are getting excited about creeping up toward 1.5%.

Agree that while these metrics will not universally apply, they are good rules of thumbs to make better decisions on which properties to purchase.