Real Estate Broker · Member since 2018 · 6 posts · 7 votes
A broker asked, "What are your cash on cash ratio requirements?" I'm not sure exactly what he means by this. Is this the same as IRR? Thanks for the clarity
@Todd Dexheimer Thank you for your quick response. So what do you think the Broker is trying to find out by asking this question? In this scenario, I've just reached out to make a connection and get some deals flowing. We don't have a particular property in mind yet so I'm not sure how to calculate these ratios as it seems like I would need to underwrite the deal to see what the ratios would be on a deal by deal basis. Maybe I'm way off here.
The broker is either trying to narrow down the search or find out how experienced you are or both.
Cash on cash is the return you get on cash invested on an annualize basis. IRR is the total return on the investment over time which would include the cash-flow earned along the way plus the profit on the sale at the back end divided but the amount of time the cash was invested. This is over simplification but explains the general concept.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
6y
Cash flow vs the equity you put into the deal. So it is the ratio of annual cash flow to the total amount of cash invested (down payment, closing costs, broker fees, etc).
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
6y
If you invest 10k to purchase a property and that property generates $1k a year in profit then you have a 10% cash on cash return. 10% would be your ratio.
Real Estate Broker · Member since 2018 · 6 posts · 7 votes
6y
@Todd Dexheimer Thank you for your quick response. So what do you think the Broker is trying to find out by asking this question? In this scenario, I've just reached out to make a connection and get some deals flowing. We don't have a particular property in mind yet so I'm not sure how to calculate these ratios as it seems like I would need to underwrite the deal to see what the ratios would be on a deal by deal basis. Maybe I'm way off here.
Real Estate Broker · Member since 2018 · 6 posts · 7 votes
6y
@Jacob Sampson Thank you for replying and using an example for me. What do you think a Broker is asking and why when he wants to know about my cash on cash ratio requirements? I've just made contact with this broker and we don't have any particular deals in underwriting.
@Todd Dexheimer Thank you for your quick response. So what do you think the Broker is trying to find out by asking this question? In this scenario, I've just reached out to make a connection and get some deals flowing. We don't have a particular property in mind yet so I'm not sure how to calculate these ratios as it seems like I would need to underwrite the deal to see what the ratios would be on a deal by deal basis. Maybe I'm way off here.
The broker is either trying to narrow down the search or find out how experienced you are or both.
Cash on cash is the return you get on cash invested on an annualize basis. IRR is the total return on the investment over time which would include the cash-flow earned along the way plus the profit on the sale at the back end divided but the amount of time the cash was invested. This is over simplification but explains the general concept.
@Todd Dexheimer Thank you for your quick response. So what do you think the Broker is trying to find out by asking this question? In this scenario, I've just reached out to make a connection and get some deals flowing. We don't have a particular property in mind yet so I'm not sure how to calculate these ratios as it seems like I would need to underwrite the deal to see what the ratios would be on a deal by deal basis. Maybe I'm way off here.
The broker is either trying to narrow down the search or find out how experienced you are or both.
Cash on cash is the return you get on cash invested on an annualize basis. IRR is the total return on the investment over time which would include the cash-flow earned along the way plus the profit on the sale at the back end divided but the amount of time the cash was invested. This is over simplification but explains the general concept.
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
6y
@Dan Barentine it's a good question you ask, why a broker would ask this. Normally, a broker would ask what cap rate you are seeking, or better yet, they want to hear a strict criteria: # of units, purchase price, type of class. It is better to ask yourself what type of COC you are seeking, because the returns you seek should drive the deal. So maybe you will only offer on deals that yield a minimum of 8% COC, 15% IRR, and an equity multiple of 2x, for example.
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
6y
@Dan Barentine, I agree with @Rick Martin. For most brokers and investors, time is of the essence. We have a lot going on and want to be respectful of that.
I would guess he is trying to get a gauge on the deals you want, and not pester you with deals that won't make sense for you.
Real Estate Broker · Member since 2018 · 6 posts · 7 votes
6y
@Rick Martin Thank you for your response. I was a little caught off guard with this question when asked so I need to understand the concept better before I reach out again. Thanks Again.