170% Cash on Cash Return! THAT JUST HAPPENED!

116 Replies

So before people get on me about bragging, please notice I did put this into the real estate success stories forum :). We are buying our 10th property (a milestone by itself), but the real story here is the numbers. I'm constantly surprised with what's out there. Where did we find this one? The REO list from our bank. I'm also posting this because I want to show people that fantastic deals are out there.

The numbers are really insane. Below is what we're looking at.:
-- Area: OK. Not great, but not bad either, but OK areas is where we typically invest.
-- Purchase Price: $37,000
-- Down Payment: 5%
-- Property Management: 10% fee monthly
-- Rent: $750/month (You are reading that correctly).
-- Taxes: $900/year
-- Insurance: $300/year
-- Vacancy Rate: 0% (It's already rented upon purchase)
-- Money put into it: $0 (Upon inspection there is nothing for us to do).

Here are the results from my analysis spreadsheet:
Cash on Cash Return: 170.15%
Debt Coverage Ratio: 2.378
Vacancy Breakeven: 44.43%
Operating Expense Ratio: 23.33%
BreakEven Ratio: 55.57%

Capitalization Rate: 18.65%
Gross Rent Multiplier: 4.111
Net Income Multiplier: 5.362
LTV Ratio: 95.00%
Monthly Rent to Value %: 2.03%

Cash Flow: $331.20/month - The amazing thing about this number is it's WITH a property manager taking 10%.
5-year IRR (using 2% appreciation): 175%
10-year IRR (using 2% appreciation): 172%
Present Value: $11,678
Net Present Value: $9,328
Profitability Index: 4.97

Before anyone starts to say how a price this low isn't somewhere they want to be, listen to this. It's a 1,200 sq/ft 3 bedroom, 1 bath house. It's a typical SFR. I happen to invest in MS where prices are lower than most other places in the country. The house is in great shape, already rented, and we have to put $0 into it. Anyway, just felt like tooting my own horn for 5 minutes :)

5% down on a rental, and no closing costs?

What kind of investor loan did you get for only 5% downpayment?

@Justin B.

  by MS do you mean Mississippi ?  or is it by were you live in Maryland .. did the bank that owned it finance it for you with these special terms ?

Josh here from Atlanta. Cheers on the good deal!

And yes, we all want to know how you managed to put 5% down without closing costs. Do share!

I wish you all the best with your new venture.

@Justin B.

Congrats on your deal!

You cash on cash return that you have is your best case scenario. You aren't factoring for any repairs and maintenance or any vacancies. You don't have any vacancy or any repairs right now, but it's only a matter of time that you will have those expenses and it's better to factor for those expenses.

It's great that you are able to get a loan with no closing cost and 5% down payment.

howd u get an REO with only putting down only 5% unless I'm reading it wrong? All REOs are cash only no financing

Congrats @Justin B. !!! Can't wait to hear about it on Tuesday.

@Stephen Moore REO's aren't cash only. They're like any other property, cash is always preferred and if they're in bad condition, cash only or 203k.  I just don't get the 5% down.

Sounds great! Share with the newbies how to access the bank REOs and how you make the offer. 

Congrats, I personally would factor your vacancy/repairs into any sort of "pro-forma" return. Now if this was looking back over the last year then that would just happen to be what you did for the year and nothing wrong with that. Either way the numbers look great.

@Stephen Moore not sure where you're getting that from, the vast majority of REO's sell to retail buyers with financing. The cash only no financing sales are a few really distressed assets, or ones that have been sitting and an investor thinks that will motivate the sale from the bank.

@Matt Devincenzo

  not sure we are all on the same page.. the majority of distressed asset sell for cash.

at least in my circles

@Jay Hinrichs

agreed, the question is what number of REO's are actually in a physically distressed condition. In my looking at properties the days of REO listings being full of properties in significant physical distress are gone for now. I see quite a few that have been "builder grade" fixed up where they can qualify for most financing, and many more that have some general distress, but not enough to prevent conventional financing. Which was why I responded to the "All REOs are cash only no financing".

I'm not an active agent nor a full time RE guy though, so maybe from someone with that perspective it's different. But I've seen many of those properties I've looked at close to a retail financed buyer. Definitely more than half, which would qualify as the majority. 

Great Great. Congratz. We can all be so luck right? ;)

@Justin B. , way to go man!  Not only for this incredible deal but for the nine others as wel! I too am VERY interested in the 5% down though.  All I keep hearing from lenders Is 20% down for investment properties.  If you or anyone else has a lead on 5%, 10% or even 15% money I would love to hear it!  Please do share if you would.

Dang that's awesome!! Congrats :) low investment with great return. I like!!!!

Good job! But I'll do you one better. ;-)  Purchase price 29,000 put 4,000 into it. So $33,000 all together.

Monthly rent: $1200 

I see a problem with the numbers as well. Until you calculate vacancies, maintenance, CapEx, etc you don't have a true picture of your returns. Also, as other mentioned, what about closing costs?

Personally don't place value on cash on cash because you can play games to get big numbers @Justin B. That is ok though because there are plenty of big players that do.

What is important IMO is the return on the entire investment because you can go negative equity in a heart beat.

That is great news!  I am absolutely interested on how to only put 5% down!  I'll be in heaven if I can go that route!  Please do tell.

@Justin B.

 Congratulations neighbor! I'm new so I'd like to know more about the 5% deal. Mississippii house prices are amazing compared to here in Maryland. Great job!

Originally posted by @Wayne Brooks :

5% down on a rental, and no closing costs?

since it's REO they are minimal. it's just an in house evaluation as opposed to a full appraisal. It's only a few hundred bucks and that is calculated into my ConC return. Otherwise looking at just the down payment, it's 212% :)

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