I started looking at rental deals in Dec 2016. Back then we where aiming for 14x rent multipliers (i.e. a 140k property had to bring in 10k in gross rent a year). That makes us cashflow a couple percent, usually in the range of 2-4% cash on cash and 8-10% total return (including equity build up). Now that property prices are rising, you're more looking at 15-16 sometimes 17x multipliers. That means cash flow doesn't exist anymore on these properties, the mortgage payment simply becomes too high.
The first deal we looked at was a studio apartment advertised for 130k, that we could remodel to a one bedroom apartment for about 10k, for a rent of 850 a month. That would actually be an OK deal, but the property was sold in a couple days before we could even offer on it. Then we looked at a series of comparable deals, all to be out-bid by other buyers.
The best deal we looked at was a small duplex apartment (house with two apartment units in it). It was sold with both units rented out. I believe asking was 185k and total rent with current tenants was about 1300 per month, which worked out to about 12x multiplier. Cash flow was good, total return outstanding. Also we thought with the property being rented we wouldn't have to compete against first time home buyers etc. Didn't matter, there were 20 viewers the first day, myself included. They did a closed bidding, we put in 195k as our offer and it sold for over 210k. After that we decided we are not actively looking for a rental anymore at this moment. If a deal comes along we take it, but actively scouting Funda (Dutch MLS) is not worth it. Paying retail is too much. Also, I'm not too involved in real estate networks to have access to good off market deals. Will look into that the coming months, but my guess is it's better now to acquire a lot of cash and grab ub a handful of deals during the next recession.
Do you have any ideas for getting better deals in a hot market?
