Is it just me, or is it super hard finding "good" Cash on Cash ROI?
I am reading older posts and I see the consensus is that 10-12% is considered good CCR. But I am also seeing a lot of people on here saying they have properties that are 15%, 20%, 25% CCR. I look at that and I feel like I am doing something wrong.
I am looking in the Denver market since I live here and have been analayzing hundreds of deals. I am LUCKY if I find a deal for 6-8% CCR, it's really hard to come by. Usually I can manipulate numbers to maybe get 11-12% but again, it's rare.
How are all of you on here getting such awesome deals? Is it the Denver Market maybe? Is it me?
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y
Hi John,
Markets change and you can't compare what people got in the past. I agree with Ned. A lot of the times new investors have no idea what areas to look for and what type of properties would be good investments. Right off the bat, they are at a disadvantage.
Yes, the deals are harder to come by. They have more competition and very few available. I can tell you they still exist. I closed on a deal today. SFR in TX meets more than 1% rule after my light remodel I will be doing. Property located in a B+ area. You have to have a game plan and know what a good deal is. For this property its not like I am making a killing off of it. After I am done with the work I probably created $25k in equity.
I agree with Dennis, the min should be $200 per property if you are financing. For me personally, I buy homes cash but if I were to finance I am looking for $500 min.
Realtor · Lone Tree, CO · Member since 2017 · 139 posts · 112 votes
7y
Cash on Cash Returns have a lot to do with how much leverage you use. If barely put any cash down and have very little cash flow you can still achieve a lofty Cash on cash return. I personally don't focus on it as a metric.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@John Vu yes it is hard to find good deals. Often new investors are simply looking at the wrong types of properties or the wrong areas. However we are in a competitive market right now and lots of people want to get into real estate. More competition drives prices up and returns down.
@Tanner Crawley That makes more sense now - I didn't really think about it that way. I was using the typical numbers of 20% down, and typical rates. I messed with the numbers a bit an see what you mean now.
@Ned Carey I'm glad to hear that it is not just me then. Im new to this and have been looking through properties for the last few weeks non-stop. I think i might go back to watching Dancing with the Starts haha (reference to the webinars)
It might be worse that I am in Denver where real estate has exploded here in the past several. Thanks for the input, my morale ins't completely destroyed now haha.
Realtor · Lone Tree, CO · Member since 2017 · 139 posts · 112 votes
7y
@John Vu It can be harder to find cash flowing assets in Denver. Most investors here are in it for appreciation. Have you tried looking in our tertiary markets like Colorado Springs?
@Tanner Crawley Actually, I've found some deals where it meet's Brandon Turner's guideline/rule of thumb - $100 per unit per month, and plus some. I've found a few, but the CC ROI would never really reach 12%, which is another number people seem to aim for. (Again, I am analyzing these deals based on 20% down and 4.2% rates.)
I haven't really looked outside the city yet like CO Springs because if I buy my first property, I would want to manage it myself, and I'm just not sure if I'd be willing to drive that far anytime something goes wrong. But who knows, maybe there will be an irresistable deal down there.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@John Vu glad to see you've got a picture now LOL.
I just posted in another thread. I sold two properties at auction today. They went for 25-35% more than I expected.
Don't worry, If this were a race it would be a marathon not a sprint. It is not important to be the first one out of the blocks. Real estate is not get rich quick. It is a proven reliable method for getting rich slowly.
@Ned Carey Congrats on selling your properties! I like how you make it sound so casual! Also, funny you noticed the picture LOL
I totally understand this is a long term thing. I think because of that very reason, I am even more eager to get started. If it is a long time thing, then the sooner the better right?
Rental Property Investor · Los Angeles, CA · Member since 2015 · 24 posts · 5 votes
7y
Didn't mean to highjack your thread @John Vu, but how are people calculating COC ROI without knowing what the final sale price of your property is 5,10,12 years from now. Isn't this all just speculation on what you would sell it for in the future.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
7y
@Michael Hy cash on cash (COC) return has nothing to do with future sales price. Internal rate of return (IRR) takes future sales price into account. Yes you are absolutely right that calculating IRR is based on a LOT of future assumptions.
@John Vu yes getting started earlier is better. But don't be a motivated buyer. As long as you are actively looking for deals, even if you don't buy anything you are learning valuable lessons about the market. You are also making valuable connections.
@Michael Hy Not a problem - To be honest with you, I don't know exactly how they get their numbers, but that is just what I am seeing from various threads on Bigger Pockets.
My guess is that they are calculating the numbers based on how much total cashflow they are getting for the entire year and diviging that number by the how much money they put down. That would make sense since that calculation doesn't take into account the future property value.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
I want atleast 200$ per door cash flow . if you look at the top hot markets your going to find getting good cashflow is extremely difficult if not impossible . You should then consider outskirts of the city or out of state investing . Real estate is very expensive in many major cities right now so new investors are priced out of the market and the good deals are bought up
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
7y
Hi John,
Markets change and you can't compare what people got in the past. I agree with Ned. A lot of the times new investors have no idea what areas to look for and what type of properties would be good investments. Right off the bat, they are at a disadvantage.
Yes, the deals are harder to come by. They have more competition and very few available. I can tell you they still exist. I closed on a deal today. SFR in TX meets more than 1% rule after my light remodel I will be doing. Property located in a B+ area. You have to have a game plan and know what a good deal is. For this property its not like I am making a killing off of it. After I am done with the work I probably created $25k in equity.
I agree with Dennis, the min should be $200 per property if you are financing. For me personally, I buy homes cash but if I were to finance I am looking for $500 min.
Yeah I my only game plan at the moment is to continue to analyze deals the way the Bigger Pockets show it in their webinars. I am getting a few different feeds from different agents that I know.
The only game plan I have is $100 (maybe $200 now after this thread) per door cash flow and aiming for 10% CCROI. Sounds like to me you guys on this thread are not as concenred about CCR. In that case I have actually analyzed a few properties where I have gotten $200+ cash flow from them. What next? Do you guys have any other criteria after that that helps you determine it is a good deal?
In theory, I could just go and buy one of th ones I found with $200+ cashflow, but I couldn't be sure if it was really a good deal.
If these are nonowner occupy you should base everything on 30% and at NOO rates. Hate for you to waste all this time and find out you need 30%. Now if you found a local lender to do it at 20% and 4.2% great, but both of those should be higher for NOO.
I base everything on ARV. That's how I buy. If the property is in my target area, within my price range, and I can create value I buy. I already know everything lines up. That's how I know its a good deal.
I have been investing for 17 yrs this is works for me. There are other ways but I like the system that I created for myself. Lots of different theories and ways to do this. It all depends on the investor.
I live in South Florida. It's extremely hard to get good CCROI deals here especially if you only (or mostly care about cash flow). I picked up my first real estate book in early November 2018 and started analyzing deals here, most places cash flowed negative that were in the asset class I was looking at. I ended up purchasing @David Greene book on how to invest out of state. I closed on a property in upstate NY in January 2019. A place where I haven't been with in a three hour drive of. The CCROI is great (over 20%), but there will be little appreciation for when If and when I go to sell the property.
The general rule of thumb in a super competitive market is that when interest rates are low and there aren't a lot of deals you need to look to secondary and tertiary markets to get great cash flow, or maybe find something you can force appreciation with.
That being said those markets, including the one I bought in present their own set of problems. A lot of the folks that boast about high CCROI forget to talk about the pitfalls and dangers that can come with them. Not that you can't find an unbelievable deal in a great market, it's just less likely.
Atlanta, GA · Member since 2019 · 7 posts · 2 votes
7y
@John Vu check our episode 310 of the Bigger Pockets Podcast. Jennifer Baylee’s had a very similar situation searching for deals in Denver but eventually choosing to invest in Colorado Springs
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
7y
@John Vu so the people that I know who are running the numbers and buying property in Denver are using the metric of Internal Rate of Return (IRR). They are aiming for 15% and because of inflation have in many cases surpassed that figure. Even still they are buying lousy condos in the least desirable neighborhoods to even get those numbers. The question I ask folks is, "In twenty years would you rather own a property generating 10% cash on cash in the rust belt (pick your cashflow market) or one in Denver?" Most folks will say Denver.
Just a point of observation, if all you do is base your buying decisions on the numbers you end up with junk properties in the 'hood. The is sort of what Ned Carry alluded to when he mentioned the mistakes newbies make in purchasing a property.
Finally, if you've analyzed 100s of deals. Go back and pick the best 10%. Those are "good deals" in our market. If you aren't willing to pull the trigger on one of those kinds of deals then find a different market. If you are willing to get slightly lower returns in exchange for some of that experience that Ned mentioned then perhaps it's time to pull the trigger. Find a deal in that is comparable to the best 10% and buy it. Consider the 2-4% lower return, your tuition for the hands on real estate investing school.
If you are considering investing in other areas then just keep in mind that real estate is up across the board in the US. Some areas are at different places in the real estate market cycle so you might gain some advantage from finding somewhere earlier in the cycle than Denver is at the point in time. Generally speaking at 10% CCROI historically is considered very low for investors in those high cash flow areas.
Right now you can't escape the relatively high priced real estate market by changing areas. Some numbers look better but all things considered I think they even out.
Right now I would take 6-8% CCROI in my own back yard vs 10% out of state, but that's just me.
As @Tanner Crawley mention CoC is highly dependent on how much money you have wrapped up in the deal. I'm in a different location, but in D areas, on paper it's not unusual to see 20% CoC. The problem is that an eviction and other unforeseen expenses kills the numbers.
@Bill S. makes some great points -- if it was just about the numbers then we'd all invest in artificial intelligence and analytics and have a bot decide what properties to buy.
My thought: I don't think anyone has mentioned it, but you can increase CoC by investing in the property. If you can add value and increase your rents, you may increase CoC depending on the amount of money you spent. Furthermore, if you invest enough that it makes sense to refinance, you can significantly increase CoC by pulling out cash.
Rental Property Investor · Albany, NY · Member since 2018 · 55 posts · 65 votes
7y
You can make anything look good on a spreadsheet. Beware of low down payment deals with thin margins that have high COC returns. It only takes one event to make that property a loser for the year. You will try to use logic and say "but I'm paying down the debt too!"
Trust me, you will hate that property.
If you save up and put in a healthy down payment and have solid cash flow that covers incidentals, it’s mindless. You won’t be going back trying to squeeze every penny out of the house trying to get it positive. You can focus on what really matters. The next good cash flowing property.