What makes a Good Rental deal?
Hey Team! I wanted to drop a quick post to clarify my current "buy box" and exactly what I’m looking for when it comes to adding rentals to my portfolio. When I am netowrking with agents and wholesalers they will ask me what I am looking to buy for my porfolio, this should help you filter through deals and know exactly what moves the needle for buy and hold buyers. My main focus is high-yield cash flow. I am specifically looking for deals that deliver a 20% cash-on-cash return or higher. Some buyers are ok with less that is why you need to ask the right questions so you know what they feel is a good deal. Not all buyers are the same! The only time I will consider a lower return is if there is a massive strategic play for tax breaks and advantages. In those cases, I’ll be looking to perform a cost segregation study to accelerate depreciation, which I’ll coordinate directly with my CPA. If it doesn't offer that specific tax "win," it has to hit the 20% mark for me The Math To keep things consistent, I use the following formula to vet every opportunity: ✅ Deal Analysis Formula (Clean Step 1: Adjusted Rent (conservative estimate) Monthly Rent × 80%(This accounts for vacancy, maintenance, management, etc.) Step 2: Monthly Cash Flow (Rent × 80%) − PITI Step 3: Annual Cash Flow Monthly Cash Flow × 12 Step 4: Cash-on-Cash Return (%) Annual Cash Flow ÷ Cash Invested Example (So You See It Clearly) Let’s say: - Rent = $2,000 - PITI = $1,400 (Principal, Interest, Taxes , Insurance, and HOA if applicable) - Cash Invested = $50,000 Step-by-step: - Adjusted Rent = $2,000 × 0.8 = $1,600 - Monthly Cash Flow = $1,600 − $1,400 = $200 - Annual Cash Flow = $200 × 12 = $2,400 - Cash-on-Cash Return = $2,400 ÷ $50,000 = 4.8% 📊 How to Judge the Deal - < 5% → ❌ Weak (probably not worth it) - 5–10% → ⚖️ decent - 10%+ → ✅ Strong deal - 15%+ → 🔥 Excellent (rare, high-performing) ⚡ Why This Formula Works - The 80% rule bakes in real-world costs fast by taking out the other 20% for expenses (Cap X, Management, Vacancy, etc) - It avoids over-optimistic projections - It gives you a quick yes/no filter before deeper analysis