Cash Flow With 100% Financing
I have read alot on this board and others about the 125% rule, subtract vacancy, then subtract 40% and what's left should be 125% of debt service. My question is, does this apply to 100% financing? I've been looking at four plexes and I have the financing lined up, but it's tough to get those numbers. I do have reserves so a repair here and there would not wipe me out. any input would be appriciated. Thanks.
I forgot to add, does the 40 percent expenses include taxes as well? I'm thinking it does. Thanks.
Quote:I have read alot on this board and others about the 125% rule, subtract vacancy, then subtract 40% and what's left should be 125% of debt service. My question is, does this apply to 100% financing? Yes. The more you finance, the higher your debt service and the higher your net operating income needs to be to cover your debt service. As long as the ratio of net operating income to debt service is 1.25 or greater, you should be in good shape.
Quote:I forgot to add, does the 40 percent expenses include taxes as well? I'm thinking it does. Yes, it includes taxes, insurance, and all other recurring costs of operation and ownership. While 40% might be a good rule of thumb, it is not a reliable substitute for accurate expense figures.
In my area you have to either get a VERY good price on a rental property OR buy a property in the not so desirable areas to get it to cash flow at 100% financing to get it to cash flow well. For me I consider $50 - $100 per unit per month as adequate cash flow on a multifamily complex.
Sub,
I don't do a deal.....unless I can get 100% ROI...
On my units ...I make an average of $300.00 PCF.....after ALL expenses....
Some$200.00....
Some$400.00....
....as always,
GoodInvesting, Rocky