re: What Numbers do you Run to determine if a real estate investment is good

You really shouldn’t be looking to buy rental properties retail. Doing so can be done but as a last resort or when it’s a really heavy buyers market like
A crash. Wholesale, auctions, etc offer much better chances of a profitable ROI
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Nah. Buying retail is fine in a strong area. I have seen houses appreciate at double-digit rates for numerous years in a strong growth area. I have had property values double in about 10 years. Failure to pull the trigger in this type environment is a bigger evil.

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Not at all. And I was able to amass a 7 figure net worth in real estate using the rule.

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Is my early morning math not mathing?

You’re saying if I bought a $350k house, I should rent it out for $7000/month?

I try to work it from reverse

If I can get $2/sq ft for rent then I take that, multiply it by the sq footage I want and divide by .01 to get targeting purchase price

I keep hearing that I should be looking in the $200-$250k range but I can't find anything that isn't falling apart for less than $350k on zillow (SLC, UT area). I have cash saved up sitting on the sidelines but how the hell are you supposed to break into this? I don't want to spend everything on 1 or 2 properties
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What are your goals? Cash flow? Value? Your goals play a huge role on if an opportunity is one you should pull the trigger for.

I got started with a 4 plex that I likely overpaid for. Kept it 20 years. Remodeled each unit over time and sold it for a nice profit. Cash flow was never my primary goal, as the wife and I both had strong income from primary jobs. I wanted diversification from stock market. I also wanted to get involved in the strong real estate market I live in. Accumulated 8 or 10 properties and started selling them once I retired from primary profession. I am fortunate to live in a growth area and property values/rent prices have steadily risen for many years. In that environment, getting in the game can be more important than getting a great price for a purchase. A growing real estate market can be very forgiving towards paying top dollar for a purchase. Rent prices increased so much in my area that caused outside investors to come into my area willing to pay premium prices. My big paydays on rentals came when I sold them.

I also started doing new residential construction. Buy lots, hire builders to build spec houses, and sell them. This model works well. The key for me is to keep plenty of liquid assets to cover unexpected situations when they arise. And they will. Occasional problems occur. I occasionally !odd money on a house. Many changes affect each investment. Keeping enough money to deal with those allows me to profit from the many deals that turn out well.

I say all this relative to the point about having goals for your investment and deciding on spending your money to help meet your goals.

I looked for enough cash flow for the property to at least pay for itself. I don’t want a monthly drain and maintenance/ins/taxes can do that. When you add in debt service it becomes a razor thin line. If it covers its own cost, I can be patient with appreciation and don’t worry about the market.

Also, you always spend more than you think you will. Turnover costs, water heaters, HVAC, tax increases, etc.

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I get about 7-8% of value on an annual basis with short term rentals. So you are actively working for an 8% return on your capital? I honestly can't tell you how bad of an investment this is. You can do nothing and get 5% with no risk.

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Yeah 7-8% if value is well below stock returns and they require zero involvement.

Most important factor I expect will always be the same one.

What’s my cost on the property. I’ve got appraisal, construction, design and real estate sales background. The number of people who ignore repairs they know are going to cost them money down the road is truly depressing.

Even on condos and other common maintenance structures nobody ever seems to check on the assessments.

Homework up front equals profit IMO.

I’m not doing much of anything. My property is 1100 miles away. I have a management company doing the work. The 7-8% is what I net after the management and cleaning fee. It also doesn’t include the value appreciation since we’ve owned it. It was worth 20% more than I purchased it for 3 years ago. I don’t have any idea if that value is still there or not since interest rates doubled.

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I get about 7-8% of value on an annual basis with short term rentals.


So you are actively working for an 8% return on your capital? I honestly can't tell you how bad of an investment this is. You can do nothing and get 5% with no risk.
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Building equity on top of the return. And likelÿ appreciation. And diversifying away from stock market is a benefit. The 5% you refer to was likely 1 or 2% a few years ago. Not as bad an investment as you make it sound.