If I am planning to rent a SFR up to a Four Plex I will have done my purchase formula that I have listed earlier then will follow this formula:
"-" equals minus
Rents in area
- Profit I want month to month - usually 10% of gross rents
- 7-10% of gross rents for management cost (even if I do the managing)
- 5% of gross rents for repair fund
- Monthly costs I pay for such as taxes, insurance, utilities, lawn care, etc..
- Other additional costs I might have
= The most I can pay for a mortgage payment
If this works and I can show a monthly income and get a payment at or below the mortgage I have equated I will purchase for the property to rent. If the payment does not work I will a lower my offer to get a lower mortgage payment or look to flip the property.
Additional: I can usually get an extra 10% in rent if I do a lease option.
Sometimes I will do a rental if I flat line (no profit but no loss) if the property makes sense and I can see I will make more for holding the property.
Usually my rule is: if it does not cash flow why buy?
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