$100/unit cashflow

General Real Estate Investing
1

What do investors who shoot for that number typically look for as far as price per unit when purchasing apartment complexes. 30 year loan 6.5% interest?

:beer

2

I can tell you that multiplying the rent per month per unit by 100 to 125 gives me the maximum I can pay per unit. That is, if the monthly rent is $850, the most I can pay is between $85k to $106K per unit. This is very, very, rough and obviously ignores expenses and financing, which of course have to fall into place as well.

This seems to work as screening tool to keep me from wasting my time on deals that would never work. Deals that initially fall into this range will attract my attention. Deals that don’t, don’t.

3

That is basically what I am looking for. A general guideline for price per unit. Using the 50% expense rule to help sift through deals. I am basically not necessarily looking for desperate sellers, but realistic down payments to achieve the goal.

So in a nutshell, lets say we have rents @ 500/unit. 6.5% interest on the loan. 50% in expenses. To achieve $100/unit cashflow, I shouldn’t pay more than…

4

The funnest part of this post is that your username is Equity. No offense but your method is used by those who like bankruptcy.

Here is how you cash flow a property on a SFH.
$850 a month rent

  • 425 (subtract 50% of rent for expenses)

$425 = Net Income

Net Income - Mortgage pmt = Profit

If you want $100 a month per unit profit. Then your mortgage couldn’t be more then $325 a month ($425 Net income - $325 Mortgage). Roughly $45,000 is your max purchase price. This assumes there are not any immediate repairs needed. The method Equity gave you will DISTROY you and your family. You will fail if you pay $85-106,000 for a property renting for $850.

If you want a general rule of thumb then you should pay $35,000 for a unit renting for $700 a month. 2% rule, or rent X 50. Use 50, not 100-125.

5

So rent times 50 is a pretty good baseline.

6

So if I analyze this deal correctly.

30 units in Ohio

Scheduled income $161,220
Expenses $85,738 (Actually higher than 50% seesh!!)
NOI $75,482

Asking price $750,000 (cap 8.5)

If I lowball rents @$400/unit. 40030=$12000
$1200050= $600,000.

$600,000 would be my asking price in order for me to cashflow properly?

So I can either offer $750,000, and put 150k down. Offer $600,000 and put less down, and have more equity?

7

I’m tagging along on this one.

8

with NOI of $75,482 and purchase price of $750,000 how did you get a CAP rate of 8.5%
when I calculate it I get CAP rate of a little over 9.9%

9
So if I analyze this deal correctly.

30 units in Ohio

Scheduled income $161,220
Expenses $85,738 (Actually higher than 50% seesh!!)
NOI $75,482

Asking price $750,000 (cap 8.5)

If I lowball rents @$400/unit. 40030=$12000
$1200050= $600,000.

$600,000 would be my asking price in order for me to cashflow properly?


So I can either offer $750,000, and put 150k down. Offer $600,000 and put less down, and have more equity?

Anthony91,

Multiplying by 50 is the same as dividing by .02. This IS the 2% rule!

So, to screen the properties for positive cash flow, you can determine the maximum purchase price by dividing the gross monthly rents by .02 (or multiply the gross monthly rent by 50).

However, if you want to have a positive cash flow of $100 per unit per month, then you must do a cash flow analysis. Subtract the mortgage payment from 1/2 of the gross rents and determine the cash flow. If it’s not $100 per unit per month, then you need to buy cheaper or put down more money. Just remember, putting down a bunch of money does NOT change the quality of the deal. It’s kind of like putting lipstick on a pig.

If you find that putting a bunch of money down is required, then you should carefully consider whether rentals are the best use of your money. What is your return vs. what you can get from other investments. You might be better off simply putting your money in a bank CD with absolutely no risk.

Mike

10

What if the units are in a high residential neighborhood verses a rural lower apprasied neighborhood as far as figuring what you would pay per unit.

11

The point of owning rentals is to make money, not have pride in the location of your rentals. I don’t care what neighborhood they are in, if I am not going to make money, I don’t buy them.

Mike

12

THANKS!!!