I was wondering if anyone knows about any areas which has a better cash on cash return than 5 to 7 percent for properties in the A or B plus neighborhoods that are relatively newer 1990 or later built. I describe A or B plus neighborhoods as places where professionals would feel comfortable living with good school districts or close to vibrant parts of the town. Thanks!
Payal, are you talking about SFHs? If so, probably not. Also, it would be better that you ask your question with cap rate as the metric, not CoC return. CoC return entails a loan, so if you want to use that as the metric, you will need to provide what your financing terms and rate will be as well as the price range and expected LTV.
I am looking for properties in the 200K price range, though I would be willing to go up to 300K if I find a good return. I prefer SFH, but am open to other types. I plan on putting 25% down, interest rate will be around 4%. The cap rate for most properties I am looking currently is around 5% to 6%. I know lower class neighborhoods give better returns, but having less tenant headaches and house that doesn't require too much maintenance hassles is important to me.
Hey @Payal Z.
You described A/B neighborhoods as the following: "...places where professionals would feel comfortable living with good school districts or close to vibrant parts of the town".
In Birmingham you will find those in Mtn. Brook, Vestavia, Homewood, Hoover, and varying parts of Shelby County.
While Centerpoint has some great rental areas and rental houses, it is not a place where young professionals live and the school districts are really bad. The areas I listed above have some of the nations best schools and young professionals can be found everywhere.
Hope that helps!
@Payal Z. that you won't see a lot of young professionals in these areas. Most gravitate towards downtown in the loft district and move to the areas where Spencer described.
Thank you. I appreciate your input. I will study those areas.
@Payal Z. just wanted to clarify I assumed you meant in LA or CA, which is why I said probably not. From my knowledge, Houston is also a good possibility. Keep in mind expenses are much higher there (mostly due to property taxes and insurance).
If you guys are satisfied with 5-9% returns, you should come to Houston. 10-13% cash on cash for a standard rental in a stable middle class neighborhood.
Our rental properties seem to be pretty popular with you Californians. Seems like I hear from a few different people from there every month.
5-9% returns in Birmingham are for A class properties. With B properties, you can expect 9.5%-11% return. With C class 11%-13%. That is the averages but many of our investors have been receiving returns as high as 15-18% mostly with their C class investments. With higher returns comes greater risks.
I don't think you can really quantify a neighborhood like that. I invest only in Class A and B neighborhoods, and I wouldn't do a deal if i was getting less than 15% return. Granted, most of my purchases need to be rehabbed, but as long as you are putting in lots of offers its very possible, and not that difficult to get higher returns in the best areas.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing