Deal or no Deal: cash flow but low ROI

3 Replies

Would you buy SFH (3/2) property at current market price knowing that you would hold it for next 10-15 years ( yes I know recession may be coming).

Cash flow around $300 ( rent-CapExreserves-PI)

Cash invested 55k ( some Reno + downpayment).

A-/B class neighborhood

Mortgage 130k.

Location: Suburban Philadelphia  

I know that there are better deals out there in Midwest/ Southeast but I am only willing right now to stay local to see through my investment. 

Thanks for input 

@Stan F.

Based on your post, it looks like you are getting 300/month , is that after all overheads , future capex, vacancy, and management ? If no, you have to recalculate to make sure you are taking into account all future expenses and deducting it from your cash flow

Regarding the ROI itself ... 300*12 = 3600

With an investment of 55000, you are getting in the mid single digits cash on cash return ...

You can do better.

Originally posted by @Samir Shahani :

@Stan F.

Based on your post, it looks like you are getting 300/month , is that after all overheads , future capex, vacancy, and management ? If no, you have to recalculate to make sure you are taking into account all future expenses and deducting it from your cash flow

Regarding the ROI itself ... 300*12 = 3600

With an investment of 55000, you are getting in the mid single digits cash on cash return ...

You can do better.

 Thank you Samir 

I did include cap Ex/ repair/ vacancy with 300 cash flow. 

I agree that ROI is about 6-7 percent.

Current market is very high priced for good investment. Flips are hard to find in my area ( Lancaster County) and I don’t know if I want to deal with flips. 

I am just not sure that future recession will hit housing market hard since interest rates will stay low. 

Any thoughts on tax advantages ( I know it is not hard cash) since I would be able to deduct/ depreciate some of the cash I put into the deal. 

@Stan F.

My first thought is that if you are aiming for 6-7% , you will likely get less (there is always unknowns and happenstance in real estate) 

And at less than 6-7% , you are way better off from almost every point of view investing in the sp500.


From my point of view, the whole goal is to crush the sp500 (that’s always the baseline/benchmark comparison - see Berkshire annual reports for last 50 years) 

In real estate, if organized correctly, you can crush the sp500. Total ROI on many leveraged rental units exceed 30%:

15%+ Cash on cash return 

10%+ appreciation (leveraged asset)

3-5%+ loan pay down 

X% tax deductions 


On the last point, and to your question, your best bet is to consult with a tax specialist. But in my case, the result of the tax benefits basically results in my cash flow from rental units being post tax / tax free