Buy and Hold Strategies and Cash on Cash ROI

[Lucas Hammer]

Hey everyone. So I'm a brand new investor already under contract for my first condo in Chicago. It seems to be that the standard format for most Buy & Hold investors is to buy a place that needs work, fix it up, then rent it out.

I was listening to Brandon Turner's webcast yesterday and the deal we analyzed originally wasn't great at the asking price because the Cash on Cash ROI was lower than he normally likes to buy, but it seems like that would be a big problem with almost any place you had to rehab, even if it's cashflowing quickly.

Basically, I went to the calculator and looked up the condo I'm buying and estimated $3,000 in upgrades (it's already in pretty good shape and would cashflow), and in addition to a couple hundred in cashflow a month, The Cash on Cash ROI was ~33%.

I guess what I'm wondering is, based on those two facts, is it always going to be better to buy a place that's already fixed up if it'll cashflow? The Cash on Cash ROI seems like it'll always be higher with very little rehab cost as long as I can be positive on rent vs mortgage, insurance, etc.

[Corey Woodruff]

cash on cash is just a guiding point that tells you what percent of your money you are getting back each year that you originally put in. I don't plan on investing in anything that is lower than 12 percent. Now when you put no money down that doesn't really work, so I then base my decision off of cap rate and cash flow per door. 8 percent minimum cap and 200 per door minimum. Some areas that may be harder to get than others in different markets. But here in michigan that is considered very easy to get those numbers 

Hope this helps