What kind of cash on cash return are you landlords/multifam buyers looking for these days?
For those that actually use the CoC rate of return to gauge properties. Thanks in advance.
Ibrahim,
I have two complexes now and a third one under contract and they are all at or above 25% Cash on Cash Return. These have not been easy to find and have required me to be very patient. It will have been almost 4 years since I started looking to when I close on my 3rd complex.
How about you? What type of CoC returns do you shoot for?
I won't go for anything under 20% with rentals, with financing or value add. Also mostly complexes. Last one was about 18k all in for 600 in rent, it's 120 units in Houston, but with no financing.
If you can get a decent mortgage (25% down) you go over 20% CoC with a 9.5% real cap rate, or the "1.6% rule".
I target 15% as I used the MLS and FSBO... but now that I'm doing 100% financing, it's much higher :) I'm currently generating about $14,000 ($1,300 a month) a year on my $40,000 investment with another cash flowing property to close in a few more weeks and 4 other offers out. Not bad for 6 months of work :)
I am pretty new and am happy with 15%+. I work a full time job and hire a PM. I am pretty passive investor and 15% in my market is pretty easy to get when leveraged.
25%
Tough to get without financing, but now that I have been investing long enough for my rents to included in my income to qualify for a loan it is much easier to get a 25% return.
Like Andrew Jones I work full time and invest in Central Valley
I won't look at a deal unless it is over 20%
That said the last 6 weeks have been tough, more buyers and less of a supply. If this keeps up for another couple of months I might need to adjust my target return
Good Investing
Thanks for the feedback folks. Here I see investors buying off the mls and falling in the 20-22% range using a scary '1.4% rule'. But that's only if they're self-managing. With 10% management I see the CoC's falling around 12-14%. Are you guys including 10% mgmt. in your calculations?
I've traditionally used cap rates to determine my investments which I never cared for since it doesn't include the debt service. But how does one calculate CoC if he's a rehabber and then refinancing at 75% getting all of his investment back after the rehab?
I assume the 50% rule even though I self manage... assuming conventional financing and 25% down, you need rents at 1.5% to achieve 15% CoC.
#2 Innovative Strategies Contributor
- Lender
- The Woodlands, TX
- 7,222
- Votes |
- 4,993
- Posts
#2 Innovative Strategies Contributor
- Lender
- The Woodlands, TX
I have a completely different take since I gave up leverage and became a cash investor. If I can buy 20% below market in the best area in the top of the line complexes (condos), I'll accept a 6% cash flow return. These I hope will provide a hedge against inflation and possible capital appreciation above the inflation rate. For every dollar I invest in real property, I invest a dollar in high yield private mortgage loans on which I am able to obtain a 20% + annual return at 50% or less LTV on commercial income property.
So, on a totally non leverage basis, I have been able to generate a portfolio return of 14+%, with half the portfolio obtained at 20% below market value and that half hedged against inflation.
I am now considering using 50% leverage on the equity portion of the portfolio to double the price appreciation inflation hedge. However at a 6 cap it won't increase the cash on cash income return much if any.
I don't use cash on cash return. The principal portion of the monthly mortgage payment is too much of an important part of my true income to ignore. I use net income/paid in equity and net income/mark to market equity.
Originally posted by Michael Zuber:
Like Andrew Jones I work full time and invest in Central ValleyI won't look at a deal unless it is over 20%
That said the last 6 weeks have been tough, more buyers and less of a supply. If this keeps up for another couple of months I might need to adjust my target return
Good Investing
Michael Zuber I couldn't agree more. Just yesterday I inquired about a short sale and the agent told me "there are multiple offers over list price...cash and financed offers". The same home a year ago would have been an easy pick up at list price without much competition.
Wow, Andrew Jones and Michael Zuber, I'm surprised to hear you guys say that in the LA area. I get people constantly telling me how scared they are to buy right now. On my show, I'm constantly telling them to buy. But I guess we're dealing with different demographics. Most of the people I talk to are looking to buy a home rather than invest in real estate.
8% COC. I stick to East and Midtown Sacramento with duplexes and four plexes. Decent properties don't come cheap in those sub markets but I can cherry pick tenants and I have never have a problem with turnover or getting 3% rent increases every year.
I buy distressed properties in Dayton Ohio and can be all in for $20,000 on a SF 1,000 sq ft 3 bed 1 bath that rents for 625 month.
Based on the 50% rule this would translate to 18.75% Because I am doing a fairly comprehensive rehab I expect to do a little better on maintenance over the next 5 years so my short term return is closer to 22% which meas that I have recouped my cash investment in 5 years. This is without rent increases and potential appreciation of the property. Of course this is a C area and will present a more challenging management situation.
Sharon Rolel, Brady E. and Michael Zuber - are you guys getting the 20-25% CoC using the 50% rule (with 10% mgmt. factored in) or is that with self-managing?
Nathan Emmert - Yes 15% seems reasonable and realistic when the 50% rule is used, imo. Thanks for responding.
I use the 50 % rule to evaluate properties than apply the most realistic measure I can for taxes, insurance, maintenance and vacancy. Currently I am maaging properties myself but eventualy I will need a reliable property manager.
I deal in cash purchases, cashflow only, and in a very comfortable tenant environment, so can assume %90 tenanted at worst - as a result, very comfortable with 12-16% on the returns (net pre-tax, meaning all PM, insurance, body corp fees etc should already be included in this bottom line)
Originally posted by Paul Morgan:
I don't use cash on cash return. The principal portion of the monthly mortgage payment is too much of an important part of my true income to ignore. I use net income/paid in equity and net income/mark to market equity.
The principal doesn't feed your family or go in your pocket for that matter.
Originally posted by Ryan M.:Originally posted by Paul Morgan:
I don't use cash on cash return. The principal portion of the monthly mortgage payment is too much of an important part of my true income to ignore. I use net income/paid in equity and net income/mark to market equity.The principal doesn't feed your family or go in your pocket for that matter.
I'm going to go out on a limb and guess that he knows that.
Than why would you even figure principle on a monthly bases?
Using our most recent property for example, I plug all the info into my fancy deal analysis spreadsheet. Which tells me we will cash flow 13k/year. Then I get my magic ball that tells me how much the property will increase in value per year. That tells me we will make 38k a year for 10 years on the property. Then I do a cart wheel because of that number, hahaha