All Forum Posts by: Cp Rahaim

One other follow up on why percentages scared me a bit:  I was using the 50% rule as an initial screener.  A lot of properties looked ok.  But when I dug deeper i realized that the rents were on the lower side.  But regardless of the rents I still had to pay $X for landscape and $Y for water...so when I plugged these numbers in the investment looked worse.  I realized that the 50% rule was dragging down my expenses artificially low.  That's why I started down the path of trying to eliminate percentages wherever I could in my expenses.

Ben Wilkins

I wanted to use absolute numbers for a lot of items because I don't view a lot of costs as dependent on the size of the rent.  Mgt fee definitely is a percentage.  But R&M for example:  The bigger or older or in disrepair a property is will drive that expense.  So if I have to fix a window it will cost the same whether I charge $1,000 in rent or $2,000.  But I suppose I am splitting hairs and using percentages is a good estimate.

I like the forced appreciation concept...at the very least being mindful of how any money spent/projects done will increase the bottom line. And I will focus on cash flow. The only reason I have Cap Rate in there is to make sure that the asset itself generates a good return and/or the purchase price is reasonable. If the property generates $20,000 of NOI each year that seems like good money. But if the property cost $1MM it equates to a 2% return so I probably could have put my money elsewhere. But, then again, that would bear itself out in the cash on cash return...so again I think I'm getting too cute. If goal number one is not to feed it then cash flow is goal number one.

I am creating a proforma to analyze deals. I am looking to buy my first property and need some advice on metrics. Do you look for a certain cap rate? Cash on cash return? NOI? Appreciation? Also, do my numbers look out of whack? I use a lot of absolute numbers instead of percentages (e.g. Cap Ex at $30/unit/month). I'm looking in central MA and RI and primary goal is not to contribute cash after intial purchase. Finding it difficult to find anything too decent that give me a comfortable return? Any feedback would be appreciated. Thanks

I have several questions as I try to finalize my analysis procedures.

1. When analyzing a deal do you look at cash flow per unit after debt or cash on cash return? I ask because I've seen people saying they like $100-$200 per door but if that equates to 3% COC return that's no good. And if you are making a good COC return but the dollars per door are tiny that's no good. Seems like you need a combination of $X per door AND a COC return of Y%.

2.  Cash on cash returns are typically after debt.  But what if there is no debt?  Do you have a cap rate or a before debt cashflow that you like to see?  Similar to question #1 but looking for metrics to use before debt.

3. How do you account for turnover costs? painting, repairs, commissions, etc. I don't think I've ever seen such costs in an analysis.

Thanks

Cliff