All Forum Posts by: James W.

@John Woodrich is a manager at a CPA firm and has done my business taxes the last 10 years.

I used to use a percentage of rents but have since moved to an estimate for the property based on the estimate cost of items in my area. My estimate comes to $220/mo for a SFR which does not sound too attractive but gives me a sense of what I should consider reasonable.

I still look at is as a percentage of rents and change the Cap Ex figure a bit too to see if I can possibly make something work, but I do want to get an idea on the return on various levels of cap ex too as I could potentially sell a property before realizing some of those items as well.  

My advise is not to worry as much about the type of property (whether it is a SFR, Duplex, Triplex, fourplex) and to just make sure the numbers make sense on the deal. As previously discussed, many of these properties are overpriced due to demand exceeding the supply which has led to them being a poor investment for new investors-Especially ones not able to appropriately evaluate a deal.

Good luck!

@Jorge Ubalde  Why would you posted another thread on the topic instead of using the search bar for something you thought would be a "very common question?" 

Make sure you get strong cash flow and do not rely on appreciation in out of town areas like the one you are in.  Some properties never seem to appreciate so you are fooling yourself if you rely on appreciation in some areas.  Also, just because properties are cheaper there does not mean they will be cheaper to maintain.  You may need a higher Cap Ex figure if looking at as a percentage of rents.  Small multis are cheap out there but rents are cheap and maintenance is just as expensive.

@Joe Villeneuve I'm not sure if you misread my post.  The 30% return has nothing to do with the overall return on the property, it is a goal for the cashflow I would like to try and get on a property.    

If you read my posts, I have been saying $100/door is too little.  Instead of getting $100/door cashflow on a $1,200/mo rental, I would like to get closer to 30% of gross rents which would be $360/mo in cashflow.  It is the complete opposite of what you are saying.  It is getting harder to find now, but I like looking at the cashflow piece as a percentage of gross rents as opposed to a certain $$$ per door.  

Discussing a certain $$$ per door means nothing on here as people are investing in completely different markets.  As my post said, $100/door cashflow is completely different on a unit renting for $500/mo than a unit renting for $1,500.  $100 on a $500/mo property is 20% of rent where as $100 on a $1,500/mo property is only 6.67%.  The lower the cashflow, the harder it will be to manage the next downturn.  Even if someone has equity, they will not be able to get access to it if the property does not provide sufficiant cash flow.

Could check NREIG.  They are probably not as much but I cannot speak to the level of coverage either.

@Scott R.

The value of 5+ is only based on the increase in income.  Most substantial increases in income/value will come from an increase in rents.  Not the small changes in the property.  

The point is that 5+ is completely different in valuing than 1-4.  1-4 needs a change in the property or market value and has nothing to do with the income generated as it is valued on the sales comparison approach.  

I'm done responding to your posts as they keep dragging further and further off topic...  You are not teaching me anything and the discussion is not helping out the OP.

@Scott R.

This is a discussion of a buy and hold rental real estate transaction, not a purchase, improve, and resell transaction.  

Appreciation in a rental can only come from an improvement in market rents (5+) or an increase in the market value (1-4).  Your flip has nothing to do with the topic at hand of $100/door and does not apply. 

@Scott R.

Flipping=appreciation LMAO.  I started with flipping homes.   I bought them for 40% of their pre-recession value, fixed them up, and sold them at 75% of their pre recession value in much better shape at a profit.  Would you call that "appreciation" too?

@Mike Dymski

I was in school and did not invest prior to the last crash.  I got in right after it hit when prices looked good.  Maybe you made it through, but others did not.  Who do you think I was buying my deals from when I got in after the last crash?  It was the investors who bought high, did not get good cash flow and could not keep their properties.  

@Terre B.

If your numbers are so solid that you can guarantee $100/mo (with management) and you are comfortable taking on the risk of RE and getting a very small return (without assuming appreciation), by all means, go for it.  Look at your return on your investment though.  I'm guessing it will be very minimal.  You have to realize many of these metrics on here have not been tested to withstand any change in the economic cycle and that $100/door is completely different when talking about different places and different average rent levels.  Without appreciation, or additional rent increases, you are never going to make any real money on a property at $100/door.  Just think about how many doors you would need to own to quit your day job and how you would ever get to that if you only made $1,200/yr on each door.  It is not very scaleable unless you have deep pockets.  

Brandon was investing in Aberdeen, WA where rents are likely $600-$700.  $100/door is completely different there than it is in a bigger MSA and I don't believe he was investing pre-crash either.