Cash on Cash ROI...reality check

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Cash on Cash ROI...reality check

Samantha Soto
Investor · Indianapolis, IN · Member since 2016 · 221 posts · 134 votes

Hello everyone,

I'm new to this and working on acquiring my first deal along with my husband @Jose Soto. We are looking for properties in the Huntsville, Al area. We have primarily been looking at SFR. We have been using the rental property calculator and have been trying to make offers that get our Cash on Cash ROI to 11%. The hard thing about this is that many of the properties we are looking at are below 100k. For example, one I am looking at is listed at 87k. In order to make the numbers work for 11% I would need to offer 53k. It just seems highly unlikely to me that anyone is going to want to accept such a low offer. I even feel bad asking realtors to make these offers...like they are going to think I am wasting their time (except @Christy Harris, she has been amazing and hasn't laughed at us one...at least not to our faces!)  Anyways, I was curious to hear from the community, specifically people who have SFR's....what is the typical cash on cash returns that you get for your properties?  Do you have any with lower cash on cash ROI's that you are still happy with?  

Any words of wisdom for this newbie who is eager to buy but also wants a good deal?

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Mike Hanneman
Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
10y

I don't ever feel bad for making a low offer, especially if your numbers back it up. The worst that happens is you don't hear anything back. If a home has been on the market for an extended period sellers could get motiviated to sell and are just waiting for the next offer to come in. 

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  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Richard Dunlop:
    Originally posted by @Account Closed:
    Originally posted by @Ali Boone:

    @Account Closed

    @Brent Coombs

    @Bob Bowling the people you are scolding are not 1 issue investors, I speculate that they typically invest using several metrics.

    I invest in Detroit BECAUSE of the appreciation the Cash Flow is great also. I expect BOTH to be better than anywhere for the foreseeable future.

    The question I would ask (Just ONE of many) "Is why would ANYBODY invest in a market where the average weekly wage is lower than Detroit.

     Wayne is the County Detroit is in.

    Is this the only metric I should use?

    Of course not! Taking everything together I'm glad I relocated to Detroit. FROM one of your favorite markets California.

    Actually I believe you are wrong.  Here is what @Ali Boone stated, " It's all about the price-to-rent ratio."   Then she goes on to express that she thinks this identifies cash flow which seems to be her and Brents focus for investment.  I'm just pointing out that The metrics they are using are not measuring what they think.  Do you notice how neither have stepped up to explain their thinking?

    I'm trying to educate not scold. 

    As far as your question I can say that the market does not consist of those making the average weekly wage.  Hawaii is an international market made up of high net worth and high wage earners.  That is reflected in the prices and the supply and demand.  Those are metrics that favor a profitable market.

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Coombs:
    Originally posted by @Ali Boone:

    @Account Closed

    Doesn't matter for you, you don't buy for cash flow.

    @Brent Coombs

    In terms of....what it means? Or specific numbers? I was just speaking about it generally in this case....a price-to-rent ratio is going to compare prices to buy properties versus the rents they can charge. It will suggest whether you can get monthly cash flow from a property or not. Price-to-rent ratios say in Indy are favorable for monthly cash flow. Price-to-rent ratios in LA are not. Meaning the purchase price is too high and the rental amount is too low (or some combination thereof) to yield the owner positive monthly cash flow.

    Ali, I was supporting the importance you placed on price-to-rent ie. yes, specific numbers for each property being analyzed. I'm not sure why Bob wanted to make the point of suggesting to you that price-to-rent calculations are a waste. Cheers...

    Brent, neither of you have explained how one would use this metric.  What are you supporting?  PTR ratio does not identify cash flow markets.  Please explain. 

    0Reply
  • David L.
    Kalaheo, HI · Member since 2016 · 58 posts · 10 votes
    10y
    Originally posted by @Richard Dunlop:

    The question I would ask (Just ONE of many) "Is why would ANYBODY invest in a market where the average weekly wage is lower than Detroit.

    Sadly, locals aren't the buyers over here.  I have an area over here where in two month, empty lots (yes, no house) jumped from $380k to $420k.  I can tell you for certain, it's not locals w/ the average salary buying. 

    Btw, what site are you using in your examples?

    0Reply
  • Richard Dunlop
    Investor · Detroit, MI · Member since 2014 · 755 posts · 462 votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Richard Dunlop:
    Originally posted by @Account Closed:
    Originally posted by @Ali Boone:

    @Account Closed

    @Brent Coombs

    @Bob Bowling the people you are scolding are not 1 issue investors, I speculate that they typically invest using several metrics.

    I invest in Detroit BECAUSE of the appreciation the Cash Flow is great also. I expect BOTH to be better than anywhere for the foreseeable future.

    The question I would ask (Just ONE of many) "Is why would ANYBODY invest in a market where the average weekly wage is lower than Detroit.

     Wayne is the County Detroit is in.

    Is this the only metric I should use?

    Of course not! Taking everything together I'm glad I relocated to Detroit. FROM one of your favorite markets California.

    Actually I believe you are wrong.  Here is what @Ali Boone stated, " It's all about the price-to-rent ratio."   Then she goes on to express that she thinks this identifies cash flow which seems to be her and Brents focus for investment.  I'm just pointing out that The metrics they are using are not measuring what they think.  Do you notice how neither have stepped up to explain their thinking?

    I'm trying to educate not scold. 

    As far as your question I can say that the market does not consist of those making the average weekly wage.  Hawaii is an international market made up of high net worth and high wage earners.  That is reflected in the prices and the supply and demand.  Those are metrics that favor a profitable market.

    I know your market got the Japanese boost as you have pointed out previously and I do believe you are experiencing and will continue to get a Chinese boost (as is much of the West Coast) but then you and I would disagree from there.

    I believe your market has to out price paying tenants at some point while you seem to imply that the "irrational exuberance "can continue indefinitely.

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Richard Dunlop:
    Originally posted by @Account Closed:
    Originally posted by @Richard Dunlop:
    Originally posted by @Account Closed:
    Originally posted by @Ali Boone:

    @Account Closed

    @Brent Coombs

    @Bob Bowling the people you are scolding are not 1 issue investors, I speculate that they typically invest using several metrics.

    I invest in Detroit BECAUSE of the appreciation the Cash Flow is great also. I expect BOTH to be better than anywhere for the foreseeable future.

    The question I would ask (Just ONE of many) "Is why would ANYBODY invest in a market where the average weekly wage is lower than Detroit.

     Wayne is the County Detroit is in.

    Is this the only metric I should use?

    Of course not! Taking everything together I'm glad I relocated to Detroit. FROM one of your favorite markets California.

    Actually I believe you are wrong.  Here is what @Ali Boone stated, " It's all about the price-to-rent ratio."   Then she goes on to express that she thinks this identifies cash flow which seems to be her and Brents focus for investment.  I'm just pointing out that The metrics they are using are not measuring what they think.  Do you notice how neither have stepped up to explain their thinking?

    I'm trying to educate not scold. 

    As far as your question I can say that the market does not consist of those making the average weekly wage.  Hawaii is an international market made up of high net worth and high wage earners.  That is reflected in the prices and the supply and demand.  Those are metrics that favor a profitable market.

    I know your market got the Japanese boost as you have pointed out previously and I do believe you are experiencing and will continue to get a Chinese boost (as is much of the West Coast) but then you and I would disagree from there.

    I believe your market has to out price paying tenants at some point while you seem to imply that the "irrational exuberance "can continue indefinitely.

    What you call "irrational exuberance" is really just basic supply and demand.  Hard to argue against that.  In the over 40 years of investing in Hawaii I've seen the gentrification of the Neighborhoods.  Sure the poor are pushed out to the ninth island, Las Vegas, but they are replaced by higher income earners or second home investors that don't need the rental income.  Which will restrict the supply of rentals which will mean renters will pay more but maybe for a shorter period of time.  I don't see this changing over the next 40-50 years.

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Coombs:

    @Account Closed, you wrote: "Each $100,000 in appreciation provides me $700 MORE rent".

    Interesting, that you already decided your cap rate will stay the same over time!

    I reckon that there are PLENTY of places where the cap rate will go DOWN in time!

    ie. appreciation, but with minimal/no rent increase.

    If that happens to you, will you succumb to the profitable notion of SELLING?

    But hang on! Doesn't your philosophy suggest: keeping it makes even more sense to you?...

    Brent, there is no cap rate calculation there.  Why do you think there is?  See how easily you can be manipulated when you just think a cap rate is involved.  

    0Reply
  • Sean Tracey
    Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y
    Originally posted by @Wes Brand:

     This (I can't afford to buy at 5% cap rate) is exactly what @Account Closed means by investing for cashflow is for poor people or poor investors. You're looking at cashflow only not because it's going to give you the best return on your money over time but because you can't afford to consider anything else: a poor person. Not in a negative sense but in a you have cashflow needs sense. 

    And on the other side: 

    If you could afford to invest in the 5 cap areas but chose not to, because they didn't cashflow, that makes you a poor investor. Your investment should be dictated by your predictions of the market at this point. Declining an investment that will double your money from 1milion to 2 million in 10 years because it doesn't currently make money is a poor investment decision. On the other hand, declining it because you think the market is about to drop, or because you want to deploy your capital in a market where the rate of appreciation is higher/chance (or cost is lower)is better could be a smart move. 

    The bottom line is you need to consider the 5-cap market and evaluate if it's right for you. Not just knee-jerk 'it's 5 cap, stupid move to invest there'

    I think "conservative" would be a more apt description of many people looking for cash flow. I haven't seen any good reason to look into high priced, fast appreciating properties that don't provide any sort of current ROI. I'm all about creating long term wealth, and if I can do that by getting 10-20% CoC returns, while the appreciation and rent increases keep up with inflation, then I'm all good. I'd be willing to bet that the streets are littered with people that got swept up in the hype about some fast appreciating market, broke even or went negative with cash flow and then lost big. I'm an investor, not a speculator.

    2Reply
  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    10y

    @Sean Tracey

    There's always risk. The question is how much are you comfortable taking on, what's the downside, and what happens if that downside is realized? If you want to create maximum long term wealth you should definitely investigate high priced markets; I'm not saying you'll want to buy in them, but that choice should be made after looking at the market where the properties are and making an educated guess about what it will do and how much risk you can afford to take on. 

    The property I mentioned in a previous post is actually an extremely conservative bet with the potential for a huge upside should things swing my way. 

    1/ I can afford to carry the cost of the property if it explodes in my face (extremely unlikely)

    2/ I'm "cashflow negative" but only because my liquid bank account is getting smaller while my illiquid one gets bigger.

    3/ If rents or property values go up the way they have historically my CoC ROI goes to well over 100% (10% appreciation in value means I've basically doubled the cash I've put into it)

    I've hedged it in that I can eat a total loss if I need to with other income, I'm not actually losing money even with conservative rental estimates (my bank account gets smaller, but my net worth actually increases...only it's 8% return instead of 140%+), and I've given myself three ways to make a significant amount of money on the property: rents go up, property values go up, or my estimate of rent is wrong and I can get significantly more per month than I thought. Is there a chance I lose my shirt here? Of course. There always is. 

    Am I speculating? I'd say no -- it's a calculated risk. The biggest risk here is the opportunity cost of the leverage I'm deploying. Could I be using it for something more profitable?

    Or...

    That was a long winded way of saying "CoC returns" is not a measure of "conservative-ness". Your investments may be conservative, but that's because you've thought about the risks and taken steps to mitigate them. Someone could buy in a bad area of Detroit and make amazing CoC returns...but I wouldn't say they've made a conservative investment.

    0Reply
  • Sean Tracey
    Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Wes Brand Risk is indeed king, even more so than cash flow. If a person is taking on too much risk relative to their tolerance levels, then they are making a risky decision even if it's something as simple as investing in a CD. The reason being people tend to not make good decisions when under stress due to financial risk. I'm not at the stage where I could tolerate the risk associated with an appreciation play. I plan on researching in that direction, and I don't intend to pursue lower end rentals for the potentially high CoC returns. I'm going to try and settle on a happy medium, but as of now my appreciation predictions are at inflation. I might experiment by forcing appreciation through improvements to a property, though.

    As for whether or not your deal is speculative, I guess for me it would depend on how much of your total portfolio this deal constituted. I see it as speculation if it's very high return (you mention potential 100% CoC) and it would cause you to lose a significant portion of your total net worth if your market predictions weren't correct. This is even if you have the alternate source of income to bail you out.

    I think every extra percentage point of return an investor gets over time is probably going to have to be fought for in the form of risk and hard earned knowledge. I think it's very rare that a person can consistently generate extremely high returns, but I do acknowledge there are certainly those that do. I also know that plenty fail, even though they tried as hard as anyone else. It comes down to how much money do you want/need? For my goals I need 10-12% real returns over time. I don't need high appreciation to achieve that. If my needs or opinions change, and it has room in my portfolio, then I will pursue it. 

    0Reply
  • Jason V.
    Investor · Rochester, NY · Member since 2016 · 477 posts · 426 votes
    10y

    @Brent Coombs I've used that term myself, and I think we may have stumbled upon the perfect description of the "Rust-Belt" REI market:

    It just plods along.

    And not that I have any delusions of ending the timeless war between Cash-Flow and Appreciation investors, but can we at least all admit that you can be smart or stupid in either strategy? 

    1Reply
  • Andrew Holmes
    Rental Property Investor · Chicago, IL · Member since 2015 · 275 posts · 271 votes
    10y

    Ms. Samantha: In the Chicagoland area. Specifically in good very solid areas of Chicago. We look for a minimum of 25% cash on cash. (98% of all properties we down are refied out 100% and still have over 30% in equity on very conservative appraisals)

    Minimum of 25% equity after repair

    Minimum of $ 350 net cash flow/ month

    Debt Coverage ratio or 1.55 or more per property.

    There numbers might seem crazy but over the past 5 years we have managed to accumulate a portfolio of 160 + Single Family properties around chicago suburbs. 

    We do not buy high crime or war zones at all what so ever.

    So here is a typical example.

    Purchase $ 60 - 70 K

    Rehab $ 20 to 30 K

    Refi Appraisal Value - $ 140K.

    Because refi appraisal are more conservative on commercial loans we have more equity if we were flipping but I am fine with these numbers. 

    The reason we are able to get these properties because we are buying direct at sheriffs sale. Many times occupied properties, with cash no inspection at all. It's obviously has a lot of challenges but the pay off is big if you are willing to deal with all the headaches. 

    Andrew.  

    2Reply
  • Dean Weltman
    Investor · The Colony, TX · Member since 2014 · 192 posts · 66 votes
    10y

    @wes brand

    You got the nail on the head when you said that if they can't afford to carry the loss is not for them... Exactly. Every investor has a different situation and different needs, so inform everyone about your way of doing things and then let people make their own decisions. Investing is a very personal journey with different risk tolerance and different goals for everyone.

    @bob bowling

    Calling people fools because they either know less than you or disagree with you is very rude. Surely, you know better.

    Gentlemen, have a good night. 

    1Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Brent Coombs:

    @Account Closed, you wrote: "Each $100,000 in appreciation provides me $700 MORE rent".

    Interesting, that you already decided your cap rate will stay the same over time!

    I reckon that there are PLENTY of places where the cap rate will go DOWN in time!

    ie. appreciation, but with minimal/no rent increase.

    If that happens to you, will you succumb to the profitable notion of SELLING?

    But hang on! Doesn't your philosophy suggest: keeping it makes even more sense to you?...

    Brent, there is no cap rate calculation there.  Why do you think there is?  See how easily you can be manipulated when you just think a cap rate is involved.  

    Then please explain: how does your property, whose value increases by $100k, earn you an extra $700/m in rent? Where is the connection?

    As for price-to-rent, I certainly want to know whether I'd be receiving 1%, 2% or more per month gross, against what I'm being asked to pay. Why would anybody NOT want to know?

    Of course, to determine its "deal" quality, there are plenty of OTHER details I need too...

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    10y

    Initial cash on cash or price to rent are maybe not the best predictors of total profits. Perhaps they are monthly weather reports vs the actual overall investment climate and storms may be on the horizon. The primary indicator for total profits is the exact location. This is where you find the supply and demand fundamentals ruling the long term total profits potential day.

    0Reply
  • Wes Brand
    Investor · San Francisco, CA · Member since 2016 · 314 posts · 153 votes
    10y

    @Sean Tracey 'if it doesn't work out' is interesting. There's 'total loss', but the risk of that happening is so minimal it's not worth considering, so now we're in to a question of 'how much loss'...and that depends on when I sell it. The property will, if my rent guesses are correct(market research), cover all costs with the only 'cost' left to me being the equity I'm putting in to the place in principal paydown, so I shouldn't be forced to sell in a bad market. Unless, of course, I lose my job and can't find another one. This scenario assumes I'm right with my conservative rent estimates and only getting the low end of what I think I can. IE it's 'worst case'. Further, even if the market does drop it hasn't dropped by more than 20% in the past, and every time it does, it surpasses the previous high within 5 or 6 years. (Market reesearch)

    If we take a moderate assumption instead of a pessimistic one and assume my rents are in the middle of the range of what I can get I'm now making money on the property, but the cashflow is minimal. A couple hundred-ish a year after equity and costs. Further let's assume appreciation tracks inflation but that's it. My underwriting puts this at about a 30% total ROI/year (for reference, the pessimistic numbers were about 8% total ROI).

    Optimistic we grow value by 10% and get middle of the road rents, etc. 

    Point being: The percent of my net worth it represents does not factor in to my decision. My decision / estimation of risk is 1: What can happen? 2: How likely is it? 3: If it happens, what do I lose? 4: What is the opportunity cost of the resource I'm using? 5: Can I reduce it?

    1, 2 and 3 depend on market research. *That* research is what tells you how risky or conservative your investment is. *That* research will tell you if you're likely to be buying a good investment or a speculative one. Just like the person above who saw opportunity in Detroit and *moved there* to take advatage of it. If you want to do well in real estate know your market and know your goals. 

    Focusing on CoC returns and price to rent ratio and historic appreciation are all missing the forest for the trees. It's possible, easy even, to buy a place with good CoC or appreciation returns but which is a terrible investment.

    1Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Dean Weltman:

    @bob bowling

    Calling people fools because they either know less than you or disagree with you is very rude. Surely, you know better.

    Gentlemen, have a good night. 

    FOOL  a person who acts unwisely or imprudently;  Perhaps you think you have a better word for people that use a metric incorrectly.  Otherwise what was your point in rudely jumping into a thread that you had no previous input?  Surely you know better/

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Coombs:
    Originally posted by @Account Closed:
    Originally posted by @Brent Coombs:

    @Account Closed

    As for price-to-rent, I certainly want to know whether I'd be receiving 1%, 2% or more per month gross, against what I'm being asked to pay. Why would anybody NOT want to know?

    So if I understand your thinking you think the PTR ratio determines how much rent you will be receiving.   Wouldn't it be a LOT easier JUST to know market rent?  See, Price-to-Rent Ratio, useless!

    0Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    10y

    @Account Closed This is obviously off topic, but just curious what was/is your 9-5?  Some of your earlier posts have made me wonder.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Brent Coombs:
    Originally posted by @Account Closed:
    Originally posted by @Brent Coombs:

    @Account Closed

    As for price-to-rent, I certainly want to know whether I'd be receiving 1%, 2% or more per month gross, against what I'm being asked to pay. Why would anybody NOT want to know?

    So if I understand your thinking you think the PTR ratio determines how much rent you will be receiving.   Wouldn't it be a LOT easier JUST to know market rent?  See, Price-to-Rent Ratio, useless!

    Nope! I (and I'm sure many others) want to know the market rent as a RATIO to the purchase price of any property under consideration! I make no apologies for that!

    Meanwhile, I would still lie to know: how does your property, once its value increases by $100k, automatically earn you an extra $700/m in rent?...

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Coombs:

    Nope! I (and I'm sure many others) want to know the market rent as a RATIO to the purchase price of any property under consideration! I make no apologies for that!

    For what possible reason? It is not a metric of profitability. It basically only identifies high risk markets yet people want to use it as a measure of profitability. Geez, just use a market GRM against the market rents and then you don't have to recalculate each time you get a $500 counter offer. But if your investing is so slow that you have oodles of time to waste then have at it.

    As far s the $700.  Well since my PTR ratio is about .7% then each $100,000 in appreciation would likely result in a $700 rent increase.  Surprised that went over your head.  But, without any appreciation, like the high PTR ratio markets then there are no rent increases.  See, the important thing is the appreciation and rent growth. 

    0Reply
  • Account Closed
    Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
    10y
    Originally posted by @Zach Quick:

    @Account Closed This is obviously off topic, but just curious what was/is your 9-5?  Some of your earlier posts have made me wonder.

    Retired guy here.  Any specific wonder?  In real estate I have been a Realtor, investor, property manager, commercial appraiser. property tax specialist. 

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    10y

    Cap Rates have nothing to do with SFR rentals. Yet another abuse of terminology.

    Look at it this way. If you get 1% of your purchase price in rent per month (i.e. 1,000 on a 100,000 house) then you fit the so called 1% rule. Typically your exenses over the long term are roughly 50% of your rent. This site calls this phenomenon the 50% rule. You may be at 40% or 60% some years... but over the very long haul (decades) 50% is not a bad swag.

    So, 1% revenue on your invested dollar per month yields 12% revenue per year, and at 50% expense rate you are looking at 6% return... unleveraged, not counting taxes, etc. Increase your deal to 2% (hard to do anymore in many markets in the US) and you are at 12% return.

    Hope that helps.

    0Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Zach Quick:

    @Account Closed This is obviously off topic, but just curious what was/is your 9-5?  Some of your earlier posts have made me wonder.

    Retired guy here.  Any specific wonder?  In real estate I have been a Realtor, investor, property manager, commercial appraiser. property tax specialist. 

     Commercial appraiser was my hunch. I've met an appraiser that used to say similar things as this thread to potential buyers in person.  I told him he was going to lose future business if he didn't tell them how smart their purchase was, he just laughed. I imagine you two would enjoy a few beers together.

    0Reply
  • Sean Tracey
    Queens, NY · Member since 2015 · 130 posts · 34 votes
    10y

    @Wes Brand it seems like you have all your bases covered. Investing is something different for everyone, so my previous statements aren't criticisms of your investment (I don't know enough about it to criticize it). I am just stating my philosophy and can respect yours. Personally, while I consider research an integral factor in managing risk, I can't properly assess risk without also viewing a deal in the context of my total portfolio. For me, that's important and is one factor among many that I use to judge how risky or conservative an investment is. I fully agree with your other points, and think we even come close to seeing eye to eye on this based on your statement of "What can happen?". While you're rightfully concerned with what could happen within a given deal, I'm also concerned about what could happen to my overall net worth and ROI across my entire portfolio.

    0Reply
  • Brent Coombs
    Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
    10y
    Originally posted by @Account Closed:
    Originally posted by @Brent Coombs:

    Nope! I (and I'm sure many others) want to know the market rent as a RATIO to the purchase price of any property under consideration! I make no apologies for that!

    For what possible reason? It is not a metric of profitability. It basically only identifies high risk markets yet people want to use it as a measure of profitability. Geez, just use a market GRM against the market rents and then you don't have to recalculate each time you get a $500 counter offer. But if your investing is so slow that you have oodles of time to waste then have at it.

    As far s the $700.  Well since my PTR ratio is about .7% then each $100,000 in appreciation would likely result in a $700 rent increase.  Surprised that went over your head.  But, without any appreciation, like the high PTR ratio markets then there are no rent increases.  See, the important thing is the appreciation and rent growth. 

    Say what now? YOU, using the PTR metric? What's up with that? (You tried to shout Ali down for suggesting the usefulness the same thing)!

    Anyway, no, it didn't go over my head. It's just that I used the term cap rate instead of PTR. So, let me re-phrase my earlier post:-

    You wrote: "Each $100,000 in appreciation provides me $700 MORE rent".

    Interesting, that you already decided your PTR will stay the same over time!

    I reckon that there are PLENTY of places where the (RTP) will go DOWN in time!

    ie. appreciation, but with minimal/no rent increase.

    If that happens to you, will you succumb to the profitable notion of SELLING?

    But hang on! Doesn't your philosophy suggest: keeping it makes even more sense to you?...

    0Reply
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