I have a question for those of you who are experienced in managing rental properties - especially multifamilies.
What do most of you use as your most important investment benchmarks when making an investment decision?
cash on cash return?
total ROI?
$X per month per unit positive cash flow?
CAP?
I know all of these measures (and others) have their place, but I seem to keep coming across properties where one measure looks attractive (perhaps the cash on cash), but using another measure causes me to rethink.
Just curious what most of you use - and rely most heavily on.
Thanks.
It’s not a great answer, but you have to decide what is most important to you.
You analyze each deal in the same way, but you look for different results depending on your goals.
Do you want to invest to generate immediate cash?
COCR might be your deciding factor.
Do you want to buy and hold for cash flow and appreciation?
Real COCR wont happen until you sell, so maybe you look for a return better than the stock market or what you can find in a savings account or CD.
Do you want to develop, construct, then sell?
You can name your profit there, but entry to that market will be tough unless you have cash or friend with resources.
Start with your local market. Get to know the parameters and the properties.
Warren Buffett has been quoted as saying his most important factor in determining his investments is ROIC - return on invested capital. How much will he make on what he’s putting in. Money, stock, time, etc.
What’s the return on what you put in? 5%, 10% 50%, it’s up to you.
With rentals CASH FLOW IS KING. If you don’t have cash flow, you will soon be out of business! To get cash flow, you must buy at a discount, thereby picking up equiity at closing. I won’t buy a property unless I get positive cash flow of at least $100/unit/month AND 30% equity at closing (in normal times, 50% now).