Posted by phil fernandez on December 24, 2000 at 08:48:04:
Jeff,
I wouldn’t say there is a strict percentage formula to use when you buy and hold properties as rentals. Each individual will have his or her own game plan.
The way I look at a rental property that I want to hold is how it will fit into my total long term plan. Is it in a good neighborhood. Will it continue to increase in value due to location, nearby employment opportunities, good school and hospital facilities nearby, etc etc.
Will this particular property fit into my plan. If it does I buy it, rent it and hold onto it. Now I’ve just acquired another piece of the puzzle. Continue doing this over time you will have a cash flow machine. I’ve been building mine for 20 years and I’m continually adding a piece here and a piece there.
Posted by Jeff in MKE on December 24, 2000 at 07:56:49:
Is there any general rule of what percentage of profit someone should make using the buy and hold method to consider your investment a good deal?
Thank you all in advance for your responses.
Happy hollidays!!!
Jeff in MKE
The problem is determining what are the expenses. Typically take 40% off the top for vacancy, management, repairs, taxes etc. The rest can be debt service. Single family houses can have less management than multi family but they can still become an alligator. A big money investor after analyzing a multi unit may say a 13% ROI is good. Personally, I use a lot of IRA funds, if I buy and hold I want at least a 20% return long term.
My idea of a good rental property. No maintenance(AC, paint, carpet, roof, etc) for 8 to 10 years. Near a school so there is a 95%+ occupancy. In a good neighbor hood so that there will be appreciation. Find one of those that you can discount or get good terms then it is a buy and hold investment. But then carrying a mortgage where there is little maintenance worry is a good long term investment too.
Posted by Dave T on December 24, 2000 at 23:14:11:
Jeff,
I assume that your question is really “How much cash flow is needed to make a rental property profitable?”
The answer to your question is “How much is good enough for you?” I am not being facetious, but each of us has a different threshhold, based upon the amount invested, the age and condition of the property, location, probable future market value, and other factors.
In the end, it all comes down to cash flow. To add a new rental to my own portfolio, I want the year end cash flow to be at least 1.25 times as large as the sum of the mortgage payments (PI) I make throughout the year.