Recommended cf and profit (equity) to keep deal? - Posted by JohnBoy
Posted by JohnBoy on March 10, 2002 at 16:23:48:
JR,
This all depends on the individual and what their financial situation is at the time. If you have limited to no cash then my opinion is that it’s better to not stay in the middle of any deals until after you get your own financial house in order first. What I mean is that if you are planning to run out and do a L/O deal because you need to make a fast $5k so you can pay off some other debts you have, then you shouldn’t stay in the middle of a deal yet. You should assign or flip your deals to make your profit, so you can get in and out without taking on any on going liability, so you can use that money to take care of your other debts. Otherwise, if you stayed in the middle of a deal and spent that up front profit on other things, then how would you pay for any problems that come up? If a tenant stopped paying where you had to pay to evict them, cover payments on the property until you get them out and find someone else, pay for any damages and repairs, and pay to advertise to find someone else, where would you get the money from to do this with if you already spent all the money you got up front, and you had no other money???
If you can at least put the up front money you get away for reserves then you can start looking at staying in the middle of any deals that would make sense to keep for any cash flow and/or back end profit.
As far as what I look for, I look for a potential profit of about $20k per $100k value in a property. That could be by getting $5k up front, and the rest a combination of monthly cash flow and back end profit when the buyer cashes me out. If the back end profit is large enough then I would consider a deal with less monthly cash flow in order to get that back end profit. But I’m not going to stay in a deal with NO cash flow just to make a potential $5k - $10k on the back end in a few years where the payments are $1k per month! I’ll just take whatever I can get up front as a down payment from the buyer and take that as an assignment fee instead and assign my deal over to them and be done with it!
Ideally, on an average I like to see at least $200 + per month in cash flow with at least $10k - $15k on the back end where I got at least $5k - $10k up front to remain in the middle of a deal. These are on homes selling in my area that range from $100k - $160k.
On homes that are $100k + I want at least $5k up front from my buyer. Then the other profit can come from a combination of monthly cash flow and back end profit depending on the buyer I’m selling to. If the buyer looks good to where I can get them financing within a year or two then I would consider less monthly cash flow to keep their payments lower if need be and make it up on the back end by adjusting the purchase price.
Again, everything will vary depending on the property, the profit to be made, and the buyer’s ability to get financing as to how I would consider doing the deal. There is no one set way of doing this on every property. But in general I’m looking for at least a $20k profit to consider staying in the deal on a $100k property. Anything on a $100k + that’s a 20% profit based on FMV of the property. On a $150k property I’m looking for a $30k profit. A $200k property I’m looking for a $40k profit. The minimum to get in is $5k and the rest can be paid in the form of monthly cash flow and/or the back end profit. This is just me and what I look for. Anything less then that, then I look to get as much as I can up front as a down payment from someone and then assign my contract to them and be done with the deal! I may settle for a little less in some cases, but that is on a case by case basis depending on the buyer I would be selling to.