How much cashflow do you look for? - Posted by Matt

Posted by Dave T on June 15, 2009 at 10:16:53:

Regardless of the actual dollar amount of cashflow, I am also looking for the NOI to equal or exceed 125% of debt service. This is a debt coverage ratio. If I don’t get at least 125% DCR, then I either try to negotiate a lower price or walk away from the deal.

How much cashflow do you look for? - Posted by Matt

Posted by Matt on June 14, 2009 at 11:27:25:

I was directed to this site several years ago and kind of kept it on the back burner, but now I am looking at a couple of properties that I would like some input on. I found a couple of properties that have tenants that pay anywhere from 600-725 per unit that cost 25,000-30,000. I would also like to know what else to look for when looking at potential deals. Any help is greatly appreciated!!!



Re: How much cashflow do you look for? - Posted by wpage

Posted by wpage on June 15, 2009 at 19:05:43:

Matt If you can buy houses that cheap and keep them rented for 600$ to 725$ per month you are guaranteed to make money. I hope the tenant is paying the heat and lights?
The secret with these homes is to keep them rented and hopefully you don’t have a lot of expense for repairs.
Are these decent homes in a decent neighborhood?

Re: How much cashflow do you look for? - Posted by camgere

Posted by camgere on June 14, 2009 at 19:57:02:

Fixing up and maintaining a 1500 square foot $30,000 house can cost nearly as much as a 1500 sf $300,000 house. You have to be very aware of deferred maintenance and ongoing repair costs. This is why most landlords will only put money into a low cost/low rent property as a last resort to keep the rent from dropping. Experience will keep you from overspending (or underspending). You can request the last two years of the owners tax returns (I believe it is IRS form 4506-T), with the owner?s signature, to see if they are telling the government the same thing about income and expenses that they are telling you. Anyone who is lying to someone else is probably lying to you.

I recommend you learn (on the job) property management before you hire it out. Nobody will ever love your equity like you. If things spiral out of control you can step in and correct the situation without any of the ?I?m an expert, I know secret stuff, who are you to criticize me!?

You want the CAP rate to be higher than the Annual Loan Payment/Starting Loan Balance. (The higher the CAP rate the better.) This insures that higher leverage is higher ROI. Higher leverage is higher risk.

I?ve already bored all the regulars here with the math, see YouTube:

You can analyze a deal in a couple of minutes but you will property manage it for years or decades. Measure twice cut once.