Cash flow and Cash on Cash Return- when is less acceptable?

Question

We've heard the typical 1% rule and the grand slam 15% CoC return, but under what conditions would you go for a deal when these are not met?

Long term investor, not looking to quit my job or put a lot of effort in...looking at MFH and the numbers just don't add up but these properties are flying off the shelf so I am wondering if I am missing something?

Exhibit A: 4 unit for 405K, 25% down, rents ~3200 (but can possibly hit 4000), property tax 2.7%, and all other things accounted for (mgmt, CapEx, etc) our cash on cash return is less than 1%- why would someone buy this property? And why am I being asked to go over asking so that I may have a chance? I'm not a newbie but I am no professional either. Looking for your thoughts.

Jackson Babcock · Answer

Sherry my thoughts on this property is that with small MFH like a 4 plex, you will get investors where they will self manage and self perform CapEx projects trying to save money.  It makes their returns look better but they do not take into account their time in managing and working on the property.  I could be wrong, but I feel like you are competing with these types of investors.  Im not saying there is anything wrong with that, but after you figure in expenses of hiring 3rd party PM and paying a contractor for all the CapEx projects you just can't compete.

Also I believe some people buy banking on the appreciation, and not on cash flow.