All Forum Posts by: James W.

@Joe Splitrock

My goals are in line with yours for my properties.  

I have already determined $100/door will not work for me in my area but am trying to understand how there are so many people on the forums that discuss a goal of $100/door.  New investors post asking about what they should expect to get for cashflow out of a deal and there will be several people who post their goal of $100/door.  

I'm curious how many of these people recommending $100/door have really thought it through, understand what it does for them, and how it helps them meet their goals.  It seems to me like many people on here might not understand that this metric that is being tossed around might not be tied to anything or be a good idea with the exception of select scenarios and markets.

I can really only see it working on a big value add or an in a lower rent/lower unit cost situation.  

@Isaac Braun that seems somewhat reasonable for me.  I think the $860/year for your primary residence is cheap too.  

@Tim Johnson My rental rates are less than my rate as a primary residence.  Likely as they do not cover the stuff inside.  

@Tim Swierczek I'm curious if it has to do with the age of your properties.  My insurance company charges a lot more if the the home is older and does not have documented updates to the electrical and mechanical systems.  I believe @John Woodrich had an issue with that at one of his last primary residences.  

For comparison sake, I have three SFRs in the Hopkins/Minnetonka area with values ranging from $160k-$300k.  The lowest is $698 for a small home and the largest is $1,006.  I lived in the larger home at one point and it cost me more to insure when I was living there.

@Todd Dexheimer On lower cost/unit properties I can see it working, but I do not see it working well in larger MSAs where the cost/unit is higher.

I'm not as knowledgeable as others about various markets across the US, but I find it hard to find 100 units at $24k/unit and not be in a warzone.  It might not even be possible to do that in a warzone at this time.

In my examples, I avoided looking at the expenses and just factor in the net profit after debt service and cap ex of $100/door per month as that is the metric people seem to be discussing and it is more conservative.  I am using 100 units to give some additional protection against vacancy and rent fluctuations for the stressed example.

At $80k/unit ($8,000,000) which is less than they can be had for in a decent part of our area with 25% equity, that is a loan of $6,000,000 and a payment of $36k/mo at 5.5% on a 25 year amort. After all expenses, debt service and cap ex reserves, if you still pull away $100/door=$10k/mo ($120k/yr). If we look at the return over 5 years, this would be $600,000 in profit and $643k in principal amort=$1,243,000/5= $249k/yr total return=12% total return. This might meet the goals for some people, but the numbers would need to be solid to the point where $100/door will always be achieved in a stressed environment as well. Vacancy estimates would need to take into consideration a worst case scenario and rents would need to remain feasible in a down economy. 

At $100/door with 100 doors and an after cap ex profit of $10,000/mo, the property would need to be at least 86% occupied (assuming standard 4% in a better MSA) at the same rent levels in a down economy.  I don't have the experience to say whether this is achievable, which is partly why I posted.  

The example above in a longer horizon would look like a better return as there would be more principal amortization, but then we need to look at interest rates, changes in the economy, changes in the supply of housing and other variables that could happen and impact the input that gets you at $100/door.

My gut feeling is that if housing prices are down, some tenants will be in a better place to buy a home and might leave their apartments which could lead to more vacancy and a decreased rent levels when more landlords are competing. I do not have the experience to say how it would work in an apartment but that is my guess. I will say that it worked in my favor with my SFR rentals as many people that strategically defaulted needed a place to go and many of them could not fit their family and their stuff in a 1-2 BR apartment. In the down economy, I recall the cost/unit for single family homes was in line with unit cost of an apartment. My SFRs rented for more and it seemed like an easier exit strategy which is why I ultimately decided to stay with single family homes at the time. I am more interested in larger deals now from a scalability and ease of management perspective, but it is hard to find much of anything that is a real deal in our local market in the multifamily area and I do not plan on venturing too far outside of the area at this time which limits me.

I think the $100/door recommendation people seem to keep giving to new investors is a bit misleading as it is not feasible in many markets in the current economy unless it is a lower rent, lower unit cost not found in most larger MSAs.  

Also, most newer investors are looking at 1-4 unit properties and I do not agree that it is appropriate in smaller unit properties either as it is likely not scalable, they probably are not considering a property manager, their numbers are likely off somewhere, and is a lot of work to manage a property on their own for only $1,200/yr.  

I am guessing many people on here with the goal of $100/door probably do not even know what the $100/door represents as a return to them or can support how they even determined that would be a goal for them outside of saying they heard someone else they look up to say it.

I only have experience in 1-4 real estate myself and do not see it as a viable option in this environment unless people are factoring unreasonably high levels of vacancy to get to the $100/door or are investing in very low cost/unit properties not generally found in safe areas to invest. 

From what I recall seeing, you primarily do value add, which I agree is completely different.  I am guessing you will take $100/door with a value add that has a lot of upside and that it is not a goal to get $100/door on a property for you correct?  

@Bjorn Ahlblad    I work in WA so I somewhat know the area you are from and Aberdeen.  I actually had some involvement with a credit union that was closed in Aberdeen not too long ago as well.  

In lower cost areas, it may work better, but it seems harder in higher cost MSAs.

How far north in MN are you talking?  What city?

Depending on how far north it is, you may have limited opportunities to wholesale as there may be less investors looking in that area.  

Essentially, you need to figure out the lowest you can get it for taking into consideration all liens.  After you figure that out, you simply determine what work is needed to it and what the value would be after repairs.  To be able to wholesale it, there needs to be enough spread for an investor to make money on the deal after your cut.

If it is bare land in a rural area, good luck as it might not even support building in that area.

@Eric James I think the feasibility of it might depend on the market and I think some people may not understand that.  

These metrics at low cost/unit (ex $40k) and at lower rent per door level ($650/door) might work better than a larger area where the per unit cost is higher (ex $100k) and the rents are greater than $1,000/door.  

I agree Ben.  A value add opportunity is completely different than a straight buy and hold but I see people continuously throw around that they are looking to get $100/door and I don't really understand how there are so many people looking for $100/door.  I could be wrong, but my gut feeling is that most are looking for something that isn't necessarily a strong value add opportunity when they are saying this.

I understand it if there is a big value add opportunity but that is the only scenario I can wrap my head around why someone would look for $100/door unless they are banking on appreciation (which I try not to do).  

@Bill B.

It is not hard to find a deal to cashflow at $100/mo.  

I'm just curious who is buying with this metric now and how it can work in today's market.  I would not be surprised at all if Brandon had this metric investing in Gray's Harbor, WA after the recession as you can still buy single family homes at $40k/unit there and probably rent for $600-$700/mo.  I know that area and it is not the warzone, but it cannot be compared to a bigger MSA where many of us are from either.

$100/door on a $40k property that rents for $650/mo is a lot different than investing in a place with a $80k property for $1,000/mo making $100/door.  

 but the reality is that most people are not investing in outstate areas like that either.  

The part I struggle with in this scenario is that it is still only $4 million for a 100 unit building.  $40k/unit still seems cheap for an investment in an area that is not a warzone.  It seems to me like this would be a morris invest type of neighborhood.  

I will say I am not as knowledgeable in other markets, but is it reasonable to spend only $40k/unit and not invest in the hood or a rural area anywhere in the US?

@Bill F. I am factoring in $100/mo after debt service and cap ex-everything.

You can factor in vacancy at whatever you want to make it work, but the reality is that one unit of vacancy in a duplex or small portfolio of properties (say 10 units) will have a larger impact on the portfolio return than one unit of vacancy at a larger complex with comparable rents and the same $100/door.  

At the same time, achieving $100/door on a place that rents for $600/mo is a better return than $100/door on a unit that rents for $1,000/mo as the investment would likely be less in the cheaper unit.