Cash on Cash Return

17 Replies

Not really a "one size fits all" situation.  Expected returns are a function of risk associated with the deal.  The higher the risk, the higher the expected returns.

That said, if you want to focus on Cap Rates, CBRE publishes data bi-annually for numerous metro areas across several real estate sectors.

I agree with @Jason DiClemente & @Scott Meitus it does really depend on a lot of things like amount of repairs, % to partners, i.e. 70/30 split of equity, Loan rate, etc. I would start in the 10% range and then play with the numbers and then present it to your investors, remembers most investors (friends, family, etc) are going to be excited with anything over what they are getting in their 401K or IRA.

Unfortunately, there is no easy answer. Every investor has their own criteria and comfort levels. Some apartment buildings are selling in Nashville for under 5 caps right now while others are two or even three times higher than that depending on the area, condition, etc.

You could easily find an apartment building in the 10-15% range here, but it all comes down to your taste.

Tyler Cauble, Real Estate Agent in TN (#328757)
(615) 574-8060

Very interesting thread and question. I was talking with an equity group on Monday about the market and where they saw things. The first question they are asking when they see potential deals is what is the going in CoC?

As prices continue to rise, the CoC is getting tighter/lower. While you may be able to model and hit your targets on IRR, and Equity Multiples over a 3 or 5 year horizon, the CoC is a good indicator of the deal and what you are paying for it.

In our value add space of 150+ units in Texas, we are still looking for 8.5%+ CoC.

Average does not really equate. ROI is a personal decision and goal. It is directly proportionate to risk.

As a example low risk investors will park their cash in equity by paying down a income property mortgage. Their ROI is the lowest possible for investors where as those that use maximum leverage receive the highest ROI. Cash dies as equity where leverage grows wealth exponentially.

ROI is a measurement of risk tolerance.

@Jason DiClemente   Thank you     

@Scott Meitus Makes sense that it wouldn't be a one size fits all situation.   I will definitely include Cap Rates.  Thanks for the insight on CBRE. 

@Pat Gage I'll be sure to include those factors and gauge it starting at 10%.  Totally agree they would be happy to get more than whats in their retirement acct.    

@Tyler Cauble  Yeessss! you're totally right.  I have included the criteria on my intake form.

@Andrew Campbell I found this not easy to answer and I see why. There's a lot of factors involved. I find the COC is tight if the price is high and at times may not be beneficial to move forward.

@Thomas S.  Totally agree.  

@Todd Dexheimer    Good to know, so 10% is a good starting point as Jason mentioned. This deal is a value-add C property and our proforma does reflect low going in and an increase across the 5 yrs.    I'm currently seeking to raise additional money from investors to seal the deal.   I'll inbox you, maybe you have some investors that would be interested.  

As a newbie investor, I look for the highest cash on cash I could find for a good start into real estate. I would definitely say double digits and over 15% to keep you motivated and keep you going. Keeping in consideration of what everyone else says, definitely follow advice of somebody with more experience than me. My perspective is just as a newbie investor.

I look for 9-11 percent for single family and would probably want 12-15 percent for multifamily

My minimum is 10% and then min 150 - 200 per door cash flow after all exp

Originally posted by @Todd Dexheimer :

We look for being able to get into the double digit range within 12-18 months. What you should look for is entirely up to you. If you are doing value add, the CoC will be low going in and high on the exit. If you are buying stable buildings in A or B areas you should be looking for single digit returns

 In my experience, this is completely true. I'm selling my apartments for a decent profit, but I also didn't cashflow overall for the last 1.5 years. I kept rolling the rents back into the apartments to add value, make them more attractive/durable/maintenance "free". They are at a point where the cashflow should really start to come in, but I decided to cash out on that and move on. But if the sale falls through, I won't be bothered too much since I expect the money to start coming in.

Anyway, I agree with your post.

@Alisha Decoteau  Hi Alisha!  My husband and I are experienced syndicators in Dallas with over 2600 units.  I do want to add that in order to publicly say you are looking for investors in a deal...You need to be using 506c --- S.E.C. government regulations for advertising a securities deal (which our real estate investment opportunites are considered a securities).  With the 506c - you can only accept accredited investors into that investment opportunity...but you can advertise your deal anywhere you want.

So, if you are planning on taking non-accredited investors into this deal, you will be using 506b - and cannot advertise on any public platform that you are looking for investors on a particular deal.  

This gets a little tricky...but it is always better to be safe than sorry.

If you have questions about this, please reach out.  I will be more than happy to answer!

Good luck!!

Beyond the cash on cash return, I think it's also important to consider your overall return during the lifespan of the investment. 

Different investors have different goals with their capital. Some may just want a yield, and some may want capital growth, and others a blend of the two. 

My partner and I are focused on capital growth, and so the deals we're offering on have lower initial cash on cash returns, but immense upside potential from forced appreciation.

for syndicators on this thread, how do you view SFRs used as student rentals relative to your Multi-family goals or other SFRs (in terms of cash on cash and/or per room flow)?  Do you think most investors view it the same as apartments?

We are down to about 6-7% CoC in Socal. But as @Nathan G. mentioned we have different expectations on what the property will be worth later on based on our value add and the markets here. 

@Matt Hoyt , thanks for that input! In response to a more specific post I made on this topic @Peter T. from NJ stated his investors expect 15% CoC, which seems hard to achieve in MA, but I will keep running numbers and figure out where I land. Thanks!

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