COC & 2% Rule Question

[Edwin De leon]

If I buy a 4 Unit MF - what should be the minimum Cash on Cash Return To Aim For ?  Is no less than 15% Fair or am I OFF mark or does this change if I buy a 3 Unit Family can it be lower than 15% or should stick to 15% coc return ?

If I buy a 3 Unit MF for $300k - should i use always the 2% Rule to calculate my minimum rental monthly income of $6,000/mo and if it does not meet my $6,000 minimum, then I should not buy it, or is there situations where I should buy even though it does meet my minimum $6k/mo rental income ?

[Chris Webb]

Hi @Edwin De leon, I keep things simple, I want to know how much return will my initial dollar yield me. That is why I use cash on cash return to purchase assets. I have a threshold that I see in my market that I have to earn to even consider a purchase. After I own the asset it doesn't really matter because I look at only SFH and they generally do not drop in rental rates. I know going forward the rental rate should stay within 50-100 of what it is at purchase. In my experience, I have never seen rents decrease in SFH. Multi-units are different. After the purchase and the initial year of CoC return, I focus on the timing of my next refi. Once I hit the 5-year mark, I refi out all or most of my original cash put into the property and I now have infinite returns. The wrench in all of this is the rising interest rates which have essentially halted this refi. Now I look again at the post refi CoC return and see if it meets my original %, if so I will refi out. I hope this helps! Good luck!!