Over the past 2 years I’ve bought and now rent to residential properties. I’ve learned alot about the process, which is what I wanted to do. I’m now considering moving to some multi-unit properties.
I’m wondering if anyone has a good formula they use for determining what the purchase price of the complex needes to be in order to meet the profit margins you’ve set for yourself.
I have played around with spreadsheets on this, but I realized I’m probably trying to reinvent the wheel.
For all rentals, SFHs to apartment complexes, I use a maximum purchase price of gross monthly rents divided by .02. Of course, you still need to consider the equity situation and you still need to do a cash flow analysis using real world expense numbers.
Using real world expense numbers, at a purchase price of $37,500, you would have a positive cash flow of $125 per month. At a purchse price of $63,000, you would have a NEGATIVE cash flow of $44 per month. I guess it all comes down to how much you want to make (or lose).
I have been reading your blog quite a bit recently. I have a question for you. How did you get so handy? You are replacing electrical circuits and hot water heaters… Were you in a trade before you got into real estate?
Just in case Mike doesn’t see your post I can answer your question for you. Mike carried around a Lowe’s Home Improvement book for the first 3 years of his business and still uses it as a reference today. He had no experience before starting his rental property business. I only know that cause I asked the same question, haha.
Thanks for the answer. I only have one investment property and I have had good luck with not having to do much repair work. However I was reading his blog and I noticed the part about fixing the faucet and only costing $18.00. I had to fix an outside faucet and the scammer charged me $125.00 to replace a part that I later discovered was like $6.00. It was my fault though. I asked him for an estimate and he said “no worries my friend, I will take care of you”. He tried to give me an invoice for $200.00 and I told him to “p*** up a rope” so he lowered it to $125.00 which I begrudgingly paid. The funny thing is a month later he fell off a ladder and hurt his back and can’t work in rehabbing anymore. Turns out a good friend of his is a newbie in my office. So he applied for a job as a loan officer and with some help from his friend was hired. I am waiting for him to come and ask for help with a deal and I am going to hand him an invoice for $125.00. :bobble
That’s exactly why I do all the maintenance and rehab myself. I’m not paying someone $125 to spend 5 minutes changing a outside spigot that costs $6. Doing the management and maintenance more than doubles the money that I receive each money.
Those books from Lowes show you step by step how to do things. Most of it is very easy. If your first carpet job isn’t perfect, who cares? They’re only rentals and the tenants will tear them up quickly. After doing things a few times, you can become quite good. I’m currently trying to perfect my carpet seaming. Not too hard when the carpet has no pattern. A little more challenging with a pattern.