Hello
I just needed a little help in determining the cashflow on any multifamily property. What would be the acceptable minimum annual or monthly cashflow per million on the asking price of a multi family property? I am having a hard time determining whether the property will have a positive cashflow because i have heard from different investors, some say to go by $600 to $1000 per month for 5 to 10 units, another one said $25,000 annually per million on the asking price. What is the real formula to determine a positive cashflow? Please help!
I am new to this myself,but i’ve gotten a lot of help here,and this is something i can try and help with. Most investors,if not all,they used some sort of software to make a quick calculation and that saves a lot of time. I do however hear most guys on this site say 20k to 25k on each million spent is a good cash flow deal.As for the formulas,if you google,you will find them,but i would strongly suggest a Cash Flow evaluator Software for quick analyzing.
Thank you so much that did help alot, I do have a cash flow evaluator software but I just couldn’t determine if once it was at a positive that it was good enough because sometimes it would even give me just 1,000 per month cash flow but it wasn’t at the 25,000 per million, if you get what I mean, but thanks again I appreciate it.
I have heard $100 profit per door after expenses. And many cash flow equations ending with the ROI but every area is different with varying types of expenses and levels. And Banks want to see the DCR at a certain level. It is what you can live with after paying your expenses and having a comfortable emergency fund in case of vacancies or problems.
One of my properties needed a new roof and HVAC systems and had a bedbug infestation all in 6 months. Insurance paid for some, that property is barely scraping by now with the extra debt.
The answer to this question is it’s up to you. You have to weight an investment in real estate against risk/returns of other investments. From a risk perspective real estate is in between large cap stocks and options/futures.
Then ask yourself, how much do I as an investor have to make to take the risk associated with real estate vs other investments and associated risks/returns?
Take a class on cash flow analysis for commercial real estate to understand the process. Then analyze the properties against other investments.
It would be very difficult using such criteria. Rather go with CAP rates instead. If you base you purchase criteria on high CAP rates (10-15% CAP is ideal) with modest leverage, it is not hard to produce positive cash flow.
You have to take each deal on its own because how you get in in each deal could vary.
Using an arbitrary cap rate is not the way to go. Understanding what your trying to capitalize is the important thing. Once you understand that then you can decide how to capitalize it. Just because you have a positive cash flow does not mean it is a good investment.
a simple formula and this is w/o owner financing. GOI-GOE=NOI then take 7% for 25yrs,(yahoo mortgage calculator) of asking price. If the yearly mortgage from the calculator is higher than the NOI then simply put: the deal won’t work without compromising #z…all the extra stuff is what the banks use which is cool and all but this it what it comes down to for your end of the deal… :beer