What makes a Good Rental deal? · Smart Money Collective

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

Any questions?

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