Posted by Douglas Lee on July 24, 2001 at 14:28:24:
I assume you are still referring to “subject to” and L/O deals.When you are doing 10 deals a month then those peanuts start to add up. At just $100/month positive cash flow per deal you would have $1000 cash flow from 10 deals and after 10 months be up to $10,000 a month income. I could live on that! Then when your tenant/buyers start to cash you out in order to receive a better interest rate or exercise their option you are looking at anywhere from $5,000 to $10,000 or more money on the back end after closing. If you keep your pipeline filled with these peanut deals you will retire a very wealthy man. Not to mention the fact that you have helped people to buy houses who otherwise wouldn’t have been able to. I love peanuts!
For my self it depends what type of deal it is. If you are talking Subject To and L/O, I set a min of $100 per month on a Subject To deal and $250 per month on a L/O. This is over and above ALL monthly costs…payment, taxes, ins. etc.
Once I have this figure I compare it to rents in the area. If I am close to current rents I know I can add even more to the figure so my monthly profit will be higher. If I am over current rents by less than $200 then I feel pretty confident my figure is in line. If I am $200 + higher than current rents then I might have to cut down the monthly profit. If I do that and take a $100 per month profit deal I need to have a good size backend profit. If I don?t then I might pass or would need to know I have a tenant ready to move in with no extra work from me etc. In other words if its a simple deal with a quick occupancy then I will look at a $100 per month profit a little harder.
I set my limit higher on properties I might take via a L/O since I loose the tax deduction and since I don?t have the deed.
I don?t know if this is a good rule of thumb or not, but for me these guidelines give me a comfort level I can deal with. I have a full time job so the dollars are not as important as they might be for someone trying to do REI fulltime.
Ron,
Way to many variable to give a firm number. If the property is in perfect shape and looks to need nothing for the next 5 years but is in an area that looks to appreciate considerably, $50 a month after PTI. And up from there. DanT
Why do you buy property for such “crappy” returns? What am I missing here? Better yet, why do you buy property? (This is not intended to be a stupid or disrespectful question).
$50/mo or $200/mo cashflow per property seems like peanuts.
Ron,
Always love to respond to someones hypothetical question and then have them disagree. I will take another shot. I use credit lines to buy a house that needs repair, then rehab it, then refinance it and pay off the credit lines. I own nothing that makes less than $200 a month. I have no money invested in it. What would you say my rate of return is? 1%? 10%? 100%? 1000%? I mean since I have no money in it is my rate of return satisfactory to you and your standard? If not, invest in the stock market, I hear it is doing well. How about CDs, lets see, 5% on the ones I just renewed. I am pleased with the rate of return on the 8 properties I own, how about you? (This is not intended to be a stupid or disrespectful answer) I enjoy the feeling of peanuts in my pocket. DanT