What is an acceptable rate of return to look for?
Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes
What is an acceptable rate of return to look for?
Most Popular Reply
Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votesI like @Joe Villeneuve idea. Pick a number.
A big number, you're in Chicago, opportunities all over.
No, even a bigger number.
No, pick a lifestyle. 4 season tickets at the Bulls, 4 at the Blackhawks, 4 at the Bears. Dock slip for your power boat. AFTER, AFTER, your house is paid, no personal debt, college is covered, etc. etc. Put that out in front of you and start doing deals.
Looked at your background. You're in Chicago. You have what we don't have control over. You're a General Contractor. Roofs, windows, gutters. You have other trade contacts and know who is who. We don't have that. You know zoning and inspections. It's worth gold today. There is a shortage of trades.
Situations:
A. I'm just using a figure. Would like to pay you $50 per hour to run GC on a REI deal there. Pick your going rate, doesn't matter. Lifestyle- same as every other person.
B. Or, you do a flip and make $500,000 in two years. Doing what you do, just for yourself. While doing your other jobs. Lifestyle- See above.
Working Population, especially Trades:
Getting fewer and fewer.
Us, REI investors, the Out of State Investors, the financial investors would love to just pay you wages.
You need to stop being an hourly paid employee or a % Cost plus employee.
Money:
There is tons of money out there. Don't worry about the money. Don't put a dollar into any of your deals, just your experience and sweat equity. YOU are the GOLD.
Contractor Track record:
You got it. Just need to pull it together and shine it up.
Finding "IT"?
Google Loopnet, chicago, Industrial. I like NASTY. I like "ON" the market for ever. I like Chicago because it's a large fish tank.
Line up 10 deals in order of preference. Use your "Buyer" real estate agent on each one. Give them 3 day offers. Get mean. They ask for $2,000,000 you offer $1,300,000. They say no, $1,700,000; you say so much down $500,000 with Seller financing and a 5 year balloon with interest only during the 5 years, or even interest free during that time period. Keep going down the list. Someone will bite.
Watch out for EPA, Phase 1, etc studies needed. Zoning. Etc.
Example:
5540 Northwest Hwy. See if it has the BONES. 1950- Abestos. EPA- what has been in it. Been on the market for a while. Next to rail tracks. Purpose built. Combination of truck docks, small size, Low roof/low doors, large office space too big or small- tied to a warehouse, looks like an elevator shaft on the roof. This creates a very limited market of buyers and uses. NASTY. But looks like Clean Bones.
What do you do with it?
A- Zoning first.
B- Neighborhood needs second
C- Can you split the layout up and have different tenants? I see a hardcore GYM location on the left, Beer Garden in the middle afternoons to nights, TKD or daycare space on the right in the office. I would lock the parking area out and make it into open air area. Basically, get people around you and go with their thoughts. Remember COVID.
Sale:
1- Hold for a year, so you pay Capital Gains and not Ordinary Income. When you find your buyer, just tell them it's a lease for one year with option to buy. Put in large lease increases after year one, to keep the deal moving.
2- 1031- The hard part of a 1031 is controlling the sale of your property. Buying a property, is easy unless you're under duress from a 1031 to buy in the time frame. Check with a 1031 person. See if situation "1" above fits a 1031 transaction. If it does, then you have the "Sale" portion covered. Now take your time and do all of the above all over again.
3. Don't do 1031- I wouldn't do the 1031. I would pay the taxes and take the cash. Remember your money people above. You want to get rid of them as fast as possible, "UNLESS" you match up with a great person/investor. Then stick with them. You will have trouble growing and moving with SPEED. This person will make that easy. You want Speed, in buying, in retroing, in selling.
Problem:
What are you going to do with that UGLY/NASTY property? Talk with your realtor and find out what they "SEE". Talk with the local business community leaders and find out what they "SEE". Have your friends who can be open with you that have different life experiences look at it.
Personally, out front, I see blocks of parking that are available after hours. I see the dock doors wide open. I see a metal add on dock area, I can tear out and leave open for a veranda setting, etc, etc, etc. An office area, that could be opened up.
The key is to stop working for US, REI investors.
32 Replies
- Realtor · Cincinnati, OH · Member since 2022 · 81 posts · 58 votes4y
Every single investor is going to have a different rate. There are ranges based on location and asset class relative to the perceived risk. RealtyRates.com does a good job at surveys of investors.
When I was appraising and brokering in the dredges of the recession in Cleveland, a 10 cap was the minimum for any asset class. Soon after Multifamily blew up and 4-5 caps in NYC and other coastal after the recession ended were common and a 10 cap was normal in CLE, not a minimum. Not anymore, CAP rates on MF are low everywhere. Now it is tough to leverage with cash flow at the current interest rates in many markets.To many investors Real estate is an inflationary hedge with relatively low risk. When T bills are paying low interest and stocks are falling, RE investors are willing to take less return as there is nothing else producing better return.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
If I told you a rate of 5% is better than one of 10%, because the rate doesn't matter since it's a number based on a percentage which tells you nothing. You want to base your success on numbers with dollar$. Your goals are financial, or at least they should be, so what possible knowledge would a percentage give you leading to your financial goal? Remember, your financial goals are very specific.
- 4yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
I like @Joe Villeneuve idea. Pick a number.
A big number, you're in Chicago, opportunities all over.
No, even a bigger number.
No, pick a lifestyle. 4 season tickets at the Bulls, 4 at the Blackhawks, 4 at the Bears. Dock slip for your power boat. AFTER, AFTER, your house is paid, no personal debt, college is covered, etc. etc. Put that out in front of you and start doing deals.
Looked at your background. You're in Chicago. You have what we don't have control over. You're a General Contractor. Roofs, windows, gutters. You have other trade contacts and know who is who. We don't have that. You know zoning and inspections. It's worth gold today. There is a shortage of trades.
Situations:
A. I'm just using a figure. Would like to pay you $50 per hour to run GC on a REI deal there. Pick your going rate, doesn't matter. Lifestyle- same as every other person.
B. Or, you do a flip and make $500,000 in two years. Doing what you do, just for yourself. While doing your other jobs. Lifestyle- See above.
Working Population, especially Trades:
Getting fewer and fewer.
Us, REI investors, the Out of State Investors, the financial investors would love to just pay you wages.
You need to stop being an hourly paid employee or a % Cost plus employee.
Money:
There is tons of money out there. Don't worry about the money. Don't put a dollar into any of your deals, just your experience and sweat equity. YOU are the GOLD.
Contractor Track record:
You got it. Just need to pull it together and shine it up.
Finding "IT"?
Google Loopnet, chicago, Industrial. I like NASTY. I like "ON" the market for ever. I like Chicago because it's a large fish tank.
Line up 10 deals in order of preference. Use your "Buyer" real estate agent on each one. Give them 3 day offers. Get mean. They ask for $2,000,000 you offer $1,300,000. They say no, $1,700,000; you say so much down $500,000 with Seller financing and a 5 year balloon with interest only during the 5 years, or even interest free during that time period. Keep going down the list. Someone will bite.
Watch out for EPA, Phase 1, etc studies needed. Zoning. Etc.
Example:
5540 Northwest Hwy. See if it has the BONES. 1950- Abestos. EPA- what has been in it. Been on the market for a while. Next to rail tracks. Purpose built. Combination of truck docks, small size, Low roof/low doors, large office space too big or small- tied to a warehouse, looks like an elevator shaft on the roof. This creates a very limited market of buyers and uses. NASTY. But looks like Clean Bones.
What do you do with it?
A- Zoning first.
B- Neighborhood needs second
C- Can you split the layout up and have different tenants? I see a hardcore GYM location on the left, Beer Garden in the middle afternoons to nights, TKD or daycare space on the right in the office. I would lock the parking area out and make it into open air area. Basically, get people around you and go with their thoughts. Remember COVID.
Sale:
1- Hold for a year, so you pay Capital Gains and not Ordinary Income. When you find your buyer, just tell them it's a lease for one year with option to buy. Put in large lease increases after year one, to keep the deal moving.
2- 1031- The hard part of a 1031 is controlling the sale of your property. Buying a property, is easy unless you're under duress from a 1031 to buy in the time frame. Check with a 1031 person. See if situation "1" above fits a 1031 transaction. If it does, then you have the "Sale" portion covered. Now take your time and do all of the above all over again.
3. Don't do 1031- I wouldn't do the 1031. I would pay the taxes and take the cash. Remember your money people above. You want to get rid of them as fast as possible, "UNLESS" you match up with a great person/investor. Then stick with them. You will have trouble growing and moving with SPEED. This person will make that easy. You want Speed, in buying, in retroing, in selling.
Problem:
What are you going to do with that UGLY/NASTY property? Talk with your realtor and find out what they "SEE". Talk with the local business community leaders and find out what they "SEE". Have your friends who can be open with you that have different life experiences look at it.
Personally, out front, I see blocks of parking that are available after hours. I see the dock doors wide open. I see a metal add on dock area, I can tear out and leave open for a veranda setting, etc, etc, etc. An office area, that could be opened up.
The key is to stop working for US, REI investors.
- Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 801 votes4y
Every Investor is different. For me if I"m buying a class A Retail Asset with leverage then 5-6% is the range I'm comfortable with. Class A to me is high traffic counts, Long term lease, well known tenant, and max density. I usually try to have the property cash flow at $1,000 minimum.
A value Add Investor may want to seek these same terms, but knows that there is an additional upside by increasing rents, adding tenants to vacant spaces etc.
A Wealth Investor may take less of a percentage because they may not use financing and just want to park their cash in a non hassle property like a ground lease.
I wouldn't invest in Residential with only a $100 or $200 profit unless you were improving the value of the property in some way with a lot of upside. One Repair and the the profit is wiped out.
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes4y
Its all how much risk you can stomach friend. Things like private lending can deliver 8-12% depending on your state/credit policy. Or you can go to vegas and put it all on red.... no black..... no wait red!! There are lots of things in between, all with unique risk charatirsics. Identifying these oppurtuntities can be a full-time job in of itself, so you need to factor in time usage as well.
- 4yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Since we can't answer your rate of return, I'll say that I look to generate $3-6k free cash flow a month on each of my industrial deals, personally for the amount of time I spend managing it. I'm usually putting in $200k of equity along with other JV investors.
- Real Estate Agent · Member since 2019 · 569 posts · 257 votes4y
Quote from @Michael Van:
Hello all,
Just trying to wrap my head around what people are comfortable with as far as a good rate of return?
If I'm putting down I've seen these numbers all over the place for residential real estate where people say they're okay with $100-200 cash flow. Which I'm thinking, how does that work out?
Also, what are other people's thresholds for commercial real estate before they're okay with investing that much?
long term rental: I'd like a 15-20% COC return with 8% plus appreciation
Short term rental: 20-25% COC return with 8-12% appreciation
Flips:30-40% cash on cash return when sold after all expenses. I look for projects that can be completed in 4-8 weeks
New construction: 45-60% cash on cash when sold after all expenses. I look builds that can be done in 5-7 months after breaking ground.
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes4y
@Michael Van personally I like to see 7-8% COC if I am in a really nice area, and more like 10-12% COC if I am in a rougher area. I would love to see higher (and often times do) but those are my minimums to get me interested. Typically, if you are seeing a 10% COC with some added upside down the line, then you will see a much greater total return.
- Member since 2019 · 7k+ posts · 4k+ votes4y
Quote from @Michael Van:
Hello all,
Just trying to wrap my head around what people are comfortable with as far as a good rate of return?
If I'm putting down I've seen these numbers all over the place for residential real estate where people say they're okay with $100-200 cash flow. Which I'm thinking, how does that work out?
Also, what are other people's thresholds for commercial real estate before they're okay with investing that much?
Russ answer is pretty good. But adding to the point, you may want to research a little bit more about the return of syndication in the same area and compare. It's really not about one or two hundred cash-flows.
There're actually still very few opportunities available but it's only possible in some niche markets that's beyond most people's reach. Eg office space in Idaho,etc. It just because the market is controlled by local guy - Contractor · Wilmington, NC · Member since 2022 · 37 posts · 30 votes4y
I would not focus on a percentage. Focus on finding a property that has a need you feel confident you can address to create value. How much time and effort will it take to create that value?
How much value do you place in your ability to address that need and increase the value of the property.When you properly value your own time and energy you will come up with the right number for you. Its not a race so may take 6 months or a year for the right deal to present itself. Stay focused and dedicated and you will make enough money to do the next deal. Over time you will make more and more money if you stay focused and dedicated to learning. Good luck!
- Specialist · Member since 2021 · 322 posts · 273 votes4y
Quote from @Michael Van:
Hello all,
Just trying to wrap my head around what people are comfortable with as far as a good rate of return?
If I'm putting down I've seen these numbers all over the place for residential real estate where people say they're okay with $100-200 cash flow. Which I'm thinking, how does that work out?
Also, what are other people's thresholds for commercial real estate before they're okay with investing that much?
Depends what you mean, cash flow or appreciation?
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes4y
Hey @Michael Van - I think the easy answer is it depends. In my opinion, it makes quite a bit of a difference where you are at in your investing career. Brandon Turner touches on this subject......at first you to generate capital (flipping/wholesaling/high roi) to have before you can invest in bigger passive deals if your end goal is to scale and let your money make you money.
Being another Chicago contractor I'd love to connect and talk more real estate and contracting.
Quality Builders4.966 Reviews - Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes4y
@Michael Van I am in Chicago and have brokered 40 million of the 2-4 units so can tell you what my typical client looks for.
Younger clients: Want to put low down 3.5-10% and cashflow positive. If it's even just a bit positive you get a very high total return (50%+ after mortgage paydown, appreciation, etc.).
Older clients: Put 25% down and look for atleast 8% COC return in safe areas. Then after appreciation/mortgage paydown, etc. you end up with 20%+ IRR. If updating through rehab higher.
- 4yPaul MoorePro MemberCommercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
Hi @Michael Van! Rates of return and investment track records can be deceiving. They are actually 2-dimensional. What I mean is the return itself is not a measure of a good investment, at least in my opinion. Rather, you need to look at the risk-adjusted return. The risk-adjusted return takes into account the return-per-unit of risk. It's quite hard for most people to evaluate this, but it's really important. Why?
Because the rising tide has lifted all boats since the Great Financial Crisis. But someday that tide will go out and we will see who is skinny dipping according to Warren Buffett.
Trees don't grow to the sky, and neither do investment returns. As Herbert Stein Wryly observed, "if something can't go on forever, it will eventually stop."
A lot of lucky, novice operators have returned great profits to investors in the last decade. And I am truly very happy for them and their investors. However it is more important than ever to evaluate the risk when looking at a return. Risk evaluation is beyond the scope of my reply here, but there are a lot of good resources to figure that out. Happy investing!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
@Michael Van
This is a loaded question as the one thing everyone forgets to analyze is the risk on the deal. A 6% cap on a deal on k street in DC would be amazing but a 6% cap on a mobile home park in middle of nowhere would not. Why? Because of risk involved in each.
7e investments53 Reviews - Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes4y
Quote from @Michael Van:
Hello all,
Just trying to wrap my head around what people are comfortable with as far as a good rate of return?
If I'm putting down I've seen these numbers all over the place for residential real estate where people say they're okay with $100-200 cash flow. Which I'm thinking, how does that work out?
Also, what are other people's thresholds for commercial real estate before they're okay with investing that much?
A U.S. bond pays out around 4% risk free right now, so certainly more than that and after adjusting for risk/time I’d say at least high single digit coc returns on a safer assert and mid teens coc on a riskier asset.
- Property Manager · Henderson, NV · Member since 2018 · 501 posts · 317 votes4y
@Michael Van In residential I look for a wide margin of safety. I personally do not like $100-300 in cash flow. I think it should be more like $500+++ since the rental rates, vacancies, and repairs will fluctuate (especially in the current environment).
- 4yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Michael Van the best rate of return is the one that makes more on your money than where it is now.
Logical Property Management4.9458 Reviews - Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes3y
Quote from @Henry Clark:
I like @Joe Villeneuve idea. Pick a number.
A big number, you're in Chicago, opportunities all over.
No, even a bigger number.
No, pick a lifestyle. 4 season tickets at the Bulls, 4 at the Blackhawks, 4 at the Bears. Dock slip for your power boat. AFTER, AFTER, your house is paid, no personal debt, college is covered, etc. etc. Put that out in front of you and start doing deals.
Looked at your background. You're in Chicago. You have what we don't have control over. You're a General Contractor. Roofs, windows, gutters. You have other trade contacts and know who is who. We don't have that. You know zoning and inspections. It's worth gold today. There is a shortage of trades.
Situations:
A. I'm just using a figure. Would like to pay you $50 per hour to run GC on a REI deal there. Pick your going rate, doesn't matter. Lifestyle- same as every other person.
B. Or, you do a flip and make $500,000 in two years. Doing what you do, just for yourself. While doing your other jobs. Lifestyle- See above.
Working Population, especially Trades:
Getting fewer and fewer.
Us, REI investors, the Out of State Investors, the financial investors would love to just pay you wages.
You need to stop being an hourly paid employee or a % Cost plus employee.
Money:
There is tons of money out there. Don't worry about the money. Don't put a dollar into any of your deals, just your experience and sweat equity. YOU are the GOLD.
Contractor Track record:
You got it. Just need to pull it together and shine it up.
Finding "IT"?
Google Loopnet, chicago, Industrial. I like NASTY. I like "ON" the market for ever. I like Chicago because it's a large fish tank.
Line up 10 deals in order of preference. Use your "Buyer" real estate agent on each one. Give them 3 day offers. Get mean. They ask for $2,000,000 you offer $1,300,000. They say no, $1,700,000; you say so much down $500,000 with Seller financing and a 5 year balloon with interest only during the 5 years, or even interest free during that time period. Keep going down the list. Someone will bite.
Watch out for EPA, Phase 1, etc studies needed. Zoning. Etc.
Example:
5540 Northwest Hwy. See if it has the BONES. 1950- Abestos. EPA- what has been in it. Been on the market for a while. Next to rail tracks. Purpose built. Combination of truck docks, small size, Low roof/low doors, large office space too big or small- tied to a warehouse, looks like an elevator shaft on the roof. This creates a very limited market of buyers and uses. NASTY. But looks like Clean Bones.
What do you do with it?
A- Zoning first.
B- Neighborhood needs second
C- Can you split the layout up and have different tenants? I see a hardcore GYM location on the left, Beer Garden in the middle afternoons to nights, TKD or daycare space on the right in the office. I would lock the parking area out and make it into open air area. Basically, get people around you and go with their thoughts. Remember COVID.
Sale:
1- Hold for a year, so you pay Capital Gains and not Ordinary Income. When you find your buyer, just tell them it's a lease for one year with option to buy. Put in large lease increases after year one, to keep the deal moving.
2- 1031- The hard part of a 1031 is controlling the sale of your property. Buying a property, is easy unless you're under duress from a 1031 to buy in the time frame. Check with a 1031 person. See if situation "1" above fits a 1031 transaction. If it does, then you have the "Sale" portion covered. Now take your time and do all of the above all over again.
3. Don't do 1031- I wouldn't do the 1031. I would pay the taxes and take the cash. Remember your money people above. You want to get rid of them as fast as possible, "UNLESS" you match up with a great person/investor. Then stick with them. You will have trouble growing and moving with SPEED. This person will make that easy. You want Speed, in buying, in retroing, in selling.
Problem:
What are you going to do with that UGLY/NASTY property? Talk with your realtor and find out what they "SEE". Talk with the local business community leaders and find out what they "SEE". Have your friends who can be open with you that have different life experiences look at it.
Personally, out front, I see blocks of parking that are available after hours. I see the dock doors wide open. I see a metal add on dock area, I can tear out and leave open for a veranda setting, etc, etc, etc. An office area, that could be opened up.
The key is to stop working for US, REI investors.
Wow, what an answer! So much appreciated that you've dropped so much knowledge in this post! I truly appreciate the examples and the steps you've posted throughout this!
- Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes3y
Quote from @John M.:
Every Investor is different. For me if I"m buying a class A Retail Asset with leverage then 5-6% is the range I'm comfortable with. Class A to me is high traffic counts, Long term lease, well known tenant, and max density. I usually try to have the property cash flow at $1,000 minimum.
A value Add Investor may want to seek these same terms, but knows that there is an additional upside by increasing rents, adding tenants to vacant spaces etc.
A Wealth Investor may take less of a percentage because they may not use financing and just want to park their cash in a non hassle property like a ground lease.
I wouldn't invest in Residential with only a $100 or $200 profit unless you were improving the value of the property in some way with a lot of upside. One Repair and the the profit is wiped out.
John, I love how you're able to talk about the different types of investors. That makes a lot of sense for the different types of distinctions and figuring out how to talk to each.
- Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes3y
Quote from @Jonathan Klemm:
Hey @Michael Van - I think the easy answer is it depends. In my opinion, it makes quite a bit of a difference where you are at in your investing career. Brandon Turner touches on this subject......at first you to generate capital (flipping/wholesaling/high roi) to have before you can invest in bigger passive deals if your end goal is to scale and let your money make you money.
Being another Chicago contractor I'd love to connect and talk more real estate and contracting.
Love how you were able to bring up the stages of the investing career.
Happy to hear that you're in Chicago too. So happy to have met you at the Multifamily Meetup and appreciate connecting me to your friend!
- Investor · Chicago, IL · Member since 2018 · 46 posts · 55 votes3y
Just getting back to this post after a couple of months of hustle! I'm overwhelmed by the response on this page and I appreciate everyone sharing their knowledge!
Happy to announce during that 2 month period I was able to get under contract on a 4 unit strip mall! I'm looking for partners to fund the deal as I'm able to put in about a third of the deal with my own capital. Here are the details below:
Deal Summary: This is a value add deal for appreciate over a 5-year period.
6,600 sq ft, 4-unit strip mall. 3/4 units rented. 1 Unit of 1,000 sqft remaining.
$11,271,301 Purchase Price
$177,881 Income
$54,469 Expenses
$123,412 NOI
9.71% Cap rate at purchase price
8.81% Cap rate after factoring in $80,000 in repair costs and $50,000 in closing costs
The plan is to rent out the remaining unit the next year at $1,800/ month to increase by another $21,600 which will bring cap rates to:
11.41% at purchase price
10.35% after repair costs and closing costs.
The plan: Increase property value to $1,646,800 by increasing cashflow through the transition of 2/3 of current tenants to NNN leases that are renewing in 2024 and 2025 respectively. Perform repairs in the 1st year and rent out the vacant unit to increase cash flow.
With these numbers, the ROI at year 5 is 73.74% with an internal rate of return of 12.08%.
If you're interested in getting a piece of this deal, reach out to me through bigger pockets to set up a time to find out more information.
The deal is closing before Christmas so we're looking for funding before the end of November!
- 3yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
Correct the $11mm figure. State how long the existing leases are for. Sounds like a plan.
- Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes3y
@Michael Van This is an interesting question that is hard to answer. The important thing to remember is, there is no such thing as perfect in investing, only better and worse. The two primary metrics that we talk about are Coc and Cap Rate. Cash on cash return depends on how you finance a property, so you might show a great CoC on paper but that is only because you are super leveraged in the deal and have put up very little equity. Cap Rate, which unlike CoC does not account for financing costs, provides another way to analyze the property. Cap rate is most similar to traditional ROI, so it also provides us with a way to compare returns in real estate to returns on other assets like stocks and bonds. Purchase price/net income = stock price/dividend.
Both numbers are important and should be looked at when deciding whether or not to take the plunge on the property. Exact percentages will vary from location to location and property to property, so we will want to make sure that returns on our property fall in a similar range as other properties that have sold in the same area of the same type and condition. Apart from these percentages, healthy cash flow (i.e. income at least 1.5x monthly expenses) and the wiggle room to afford a visit from a handyman or a vacancy here and there are both soft metrics that I would focus on.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
No one is taking 1.3 million offers on 2 million properties in Chicago unless you are offering on overpriced junk in the ghetto haha
Ignore the BS you read on this forum go meet up with local investors at networking events and have them show you their numbers.
Most of my clients look for 10% COC or higher. Some now are at 7% or higher as financing costs are higher. 5 years ago everyone wanted 100% BRRR deals now those have been gone for a good 2 years as prices increased.
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