Quote:
Originally Posted by onlinebeginner
i could not find in this thread... what percentage of monthly rent recieved should the total cost of the house be?
what percentage would be a bad deal?
what percentage would be a fair deal?
what percentage would be a great deal?
They are in the thread - but they aren't spelled out exactly like that. Instead a lot depends on your goals and the way you finance the properties.
* Spex has stated that he looks for at least 25% COCR (cash on cash return - you should read up here and elsewhere on how to calculate it )
* Others have mentioned that they look for a cap rate of greater than 10% (again, read up and google how to calculate it)
* If you are purchasing for cash-flow, then a broad estimating tool is that you can expect to spend 45% of the GOI (gross operating expenses, which is 12x your montly rents) in operating expenses not including debt management. Your GPI (gross potential income) is, in the most basic version, equal to your GOI - loss due to vacancy (commonly 6-8%). If you subtract your operating expenses from your GPI you get your NOI. Divide the NOI by 12 and compare it to your monthly debt-management; the result is your cash-flow.
very basic example:
1400 / month (rent) = 16800 - 1344 = 15456 GPI
7560 expenses
16800-7560 = 9240 NOI for a monthly NOI of 770
So, if you can finance this for a monthly payment of less than $770 you have a positive cash-flow property, where the cash-flow is $770-mortgage payment per month.
Now, you can use that to compute COCR, CAP RATE, TRIO, etc and determine whether it is a good investment.