Brandon says he looks for 12% COCR, but....

[David de Luna]

In a recent video, Brandon says he looks for 12% COCR when analyzing deals, but, given the typical closing and post-closing expenses that go into a deal, that would bring the COCR down sometimes by quite a bit. The COCR is over one year, right? So it doesn't factor in time, which could change the return sometimes dramatically over say, 3-5 years for the buy/hold types. Is the 12% Brandon looks for as straightforward as this or should other considerations be factored into a buy decision (besides the CAP rate, GRM, etc).?

[John Warren]

@David de Luna you are correct that the COC is pretty much just your cash flow divided by all the capital you had to put up to purchase and fix up the deal. A lot of times people who are teaching about it use simplistic models that don't get too far "into the weeds". You do need to account for inspections, appraisals, closing costs, attorney fees and renovation budgets in addition to the down payment.

Most people consider COC returns for year 1, but also project what their COC will be in yer 2. For instance, I am purchasing a 19 unit building in Berwyn, and our year 1 projection is around 8%, however, this is a value add deal with a lot of renovation. Our yer 2 COC return will hopefully be closer to 14%. It is not abnormal on larger value add deals to have kind of lousy COC returns over the first year because of the amount of deferred maintenance you encounter. This is something I learned the hard way over the past year as both of the deals that I did returned no capital during the first year of owning them. They are cash flowing very, very well now though!