Monthly Cash Flow vs. COC ROI

14 Replies

Hello All, Im brand new to investing and looking for my first rental. I live in Orange County, Ca and analyzing a triplex listed at $999,999 with 30% down. I've watched all the the BP vids and following the 50%, Cash Flow per rental, and COC ROI rules. After I enter all the numbers I'll have a monthly cashflow of approximately $700 but a COC ROI between 2%-3%. Listening to the vids this may not be a good investment because of the percent Im making on the money down. Would you all agree or does the monthly cash flow supersede the COC ROI. I appreciate the knowledge and hello to any investors in Fullerton. Thanks

Hi @Marvin Ghafoori, I think 2-3% is a bit low, but I'm not familiar with that market. I think a question that you need to answer is, are you satisfied with $700 cash flow? Returns are situational, meaning if it works for you then it works--for you. Is this a market where the property and/or rental value will increase year-over-year?

@Marvin Ghafoori You live in an appreciation market. I don't see how a $1M property cash-flows. I'm not in your market like @Marc Ferguson said but that rent would need to be really HIGH to create a positive COC return. If it's listed for $1M, market value is $1M, and rents are $5K per month before expenses it's a dud.

Not to mention you're "locking in" over $300K to get into this property. That doesn't get me excited. It gets me scared. Aim for a property that's undervalued, distressed (value add), or a combination with more upside than just 5-10% ROI, bla bla. You could flip, STR, or rent-to-own lease with future tenants. Think outside the box and try not to get attached to a deal. Good luck man.

Updated about 2 months ago

The deal you described is not good. Keep looking.

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@Marvin Ghafoori

The 1% rule doesn’t work in California, which is why I invest in rentals out of state. A possibility with the triplex could be you live in 1 unit and then use the other 2 units as short term rentals. You’d have to see if the numbers work though. Otherwise, rentals don’t work in California at that price point.

Like Marc said, cashflow is a personal thing.  I personally wouldnt spend $300k to make $700 a month.  Also, what happens when one of those units isnt rented for a month or you have to spend a month rehabbing a unit after someone leaves because they had a cat who peed everywhere even though you didnt allow pets?  I live in a different market and do commercial, but I will give you a real life example of a deal I am doing now with similar numbers as you.

$900k purchase, 3 tenants, 25% down, $3,250 monthly cashflow. 

Now, if you are purchasing the triplex and living in one while lowering your personal housing cost or having a bit of cashflow on top of it, by all means do so.  The important thing is to start investing.

You're analyzing it wrong to begin with.  This is the way you should be analyzing it. (and stop using percentages to analyze...they tell you nothing, which is why you're confused):

1 - 30% DP (why so high?) = $300k in cash.  This is your entire cost.
2 - CF = $700/m or $8400/yr.  This means it will take you 35 years before you break even
3 - You are paying $300k for $8400/year return in cash flow.

Conclusion:  This is a terrible deal!!!!!

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@Marvin Ghafoori yes the $1M for $700.00 a month is not reasonable, I would look for something that you can value add if you want to stay in California to invest. ADUs are a good option, you have to be strategic with that method as well due to the fact they are new and some areas do not have a lot which will change the appraised value. Something to think about if you want and think you will stay in California to invest. 

Originally posted by @Marvin Ghafoori:

I found NICHE online to provide grades for a city.  Does anyone use any other tools or sites to grade cities?  Thanks

 What criteria do they use to grade a city.  Also, realize that no matter what the criteria, the entire city isn't the same,