Resources
Here is where you can learn more about Entrust and our approach to real estate investing. It includes our criteria for a good deal and the assumptions we use to calculate return on investment.
Buying a house is easy
Buying an investment property can seem intimidating, but it doesn’t have to be. Our clients range in age from 19 to 80, and many of them bought one or more investment properties before purchasing their own home. It helps to have money for a down payment of 15-25% and good credit, but even that is not a hard and fast rule in the investment world.
Our criteria
We believe good investments must meet all of the following metrics in the first year, at a minimum. If a deal does not meet all of them, we don’t believe the property is a good candidate for long-term rental investment. There are exceptions, but only in extenuating circumstances.
- 9%+
- Cash on cash ROI
- 8%
- CAP rate
- 20%
- Cash on cash ROI plus principal pay down (when using debt)
- 1.2
- Debt coverage ratio
We chose these four criteria because they provide a balanced approach that cannot be easily manipulated by debt. A higher loan to value would likely increase the cash on cash return but simultaneously decrease the debt coverage ratio, and since the CAP rate does not consider leverage it is a good measure of overall pricing. All purchases must also be at or below fair market value.
- Cash on cash (CoC) ROI
- The return of the net profit after all expenses on your initial cash investment: net profit divided by cash outlay.
- CAP rate
- Net operating income divided by cost of investment. Net operating income is gross revenue minus operating expenses, and does not consider debt service.
- Principal pay down (PPD)
- The amount the loan principal is reduced as a result of consistent payments.
- Debt coverage ratio (DCR)
- Net operating income divided by principal and interest payment. It shows how well an investment’s revenue covers its debt obligations.
Our assumptions
When determining whether a deal fits our investment criteria, we use the following assumptions.
- 20-25% down payment
- 20 year amortization, fixed for 5 years
- 10% property management
- Monthly property insurance of $70, unless specified differently
- Annual maintenance of $600, although each home should specify more detail
Something we consider, but which does not directly affect any of the calculations, is the potential appreciation of the local market.
What our clients think
“Ben was gracious enough to spend a lot of time answering my questions, and we realized that Entrust Investments might be the best way to dip our toes into the real estate market. Ben and Emily were helpful throughout the whole process and managed the logistics for us. We ended up purchasing the property in early March and selling it in mid-June, with the selling price landing in the best case scenario.”
“Ben sold me my very first investment property in Clarksville in 2016 when I was 26, and I still own it. Since then I’ve worked with him on seven real estate deals with varying investment strategies, and he has educated me along the way. I now own four rentals that generate passive income.”
“In real estate everyone has heard it is all about location, location, location. Working with this team I believe it is all about trust, trust, trust. Through every phase of the deal and even post deal they exemplified trust, by being totally transparent, with consistent clear communication, and being 100% reliable in everything said.”