Are there CoC 8%+ markets (without needing rehab)?

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Are there CoC 8%+ markets (without needing rehab)?

Angel Wu
New to Real Estate · Los Angeles · Member since 2022 · 10 posts · 13 votes

Anyone know of any markets with CoC of at least 8% without having to rehab? Is that even possible with today's interest rates? I'm new to this so need your input. I identified a hot market (Columbus OH) and analyzed many SFH/duplexes on and off market and found that the CoCs I'm getting are negative (A/B) to at best 2-3% (B-/C). One thing that is difficult to account for in my analysis is the actual property tax. My realtor has told me that the property taxes are based on assessed prices and that the county reassesses every 6 years, but that the worst case scenario would be 2% of purchase price if they reassess upon sale so 2% is what I've used in my calculations. The rest of the expense, I went with standard numbers/what my realtor suggested for the area. I can't imagine investors are investing for this type of CoC so does this mean they are only buying for appreciation? I get rehabbing to unlock value is crucial in REI success, but as a first timer and out of state I'm just not up for that yet. With all of that being said, if I'm not up for buying for appreciation and not up for rehabbing, then I should probably hold off on buying now, right?

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Scott E.
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
4y

I don't know your sub market but I'll say this - Achieving a true 8% cash-on-cash return on a turn-key single family home in ANY market right now is going to be challenge. Some deals might be marketed as 8%+ but then you realize that it's a 100 year old house and they didn't account for repairs, maintenance, or Capex. Which will fizzle that return down quick when a big expense inevitably comes up.

The only turn-key place I've seen 8%+ cash-on-cash returns in my market lately has been in commercial, specifically medical condo units with a sale leaseback structure. They offer higher cashflow returns in exchange for you paying a premium for the deal.

There is money to be made in this market. There is money to be made in any market. It is just more challenging during times like this where property values are high and rates are climbing as well.

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  • Matt Leber
    Rental Property Investor · Orlando, FL · Member since 2015 · 353 posts · 269 votes
    4y

    @Angel Wu I am closed two single family homes in April in Ocala FL that about meet that. One was 100% turn key, the other one has a little bit of work but nothing major (luxury vinyl plank, paint). I found both of them FSBO, and I think that allowed me more chance to win the purchase as I was able to talk with the seller a give them a little bit over ask. Once inspections were done we were able to come back down closer to ask. The FSBOs I think were getting less visibility on market.

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  • Steve Donovan
    Rental Property Investor · Green Bay, WI · Member since 2016 · 150 posts · 94 votes
    4y

    Greetings @Angel Wu As others suggest, there are many markets where you can exceed 8% CoC returns. Double digit returns are common in areas of the Midwest and you don't need to do any rehab in order to get them. Do you research and make sure you are comparing apples to apples when comparing properties and markets. All the best to you in your investing future!

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  • Angel Wu
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 10 posts · 13 votes
    4y
    Quote from @Ali Boone:
    You can get the actual property tax amount if you go to the tax assessor's website for that county and plug in the address. All of that is public record.

    A CoC of 8% has gotten pretty hard for turnkeys, but it's not undoable. I'm working with turnkeys from a provider on the Illinois side of St. Louis-- all the properties hit the 1% rule (believe it or not) and most of them are at least 8% CoC. You can also try to put your own team together outside of the turnkey providers and try to get rent-ready/turnkey properties that way.

    It's not that everyone is suddenly investing for appreciation, but they are having to do a lot more thorough analyses of the other profit centers on a rental property outside of cash flow (the profit centers that actually make people wealthy in REI...cash flow by itself has never been what makes someone filthy rich). Appreciation is a big one, but the biggest one is the hedging against inflation. The more inflation goes crazy, the more profitable a property (with a fixed-rate mortgage) is.

    Thanks for your response Ali. Question regarding property tax…. The properties I've been analyzing all currently have very low property taxes (~1200/yr). When I use that property tax amount in my analysis the COC is very high. However my concern is that once the property is sold it can be reassessed either right away or at any point in the future. Once it is reassessed it can go up to 2% of the purchase price as worst case scenario in the market I'm analyzing. As an investor don't I have to account for a worst case scenario which would mean property tax of ~7000/ year? When that happens that would effectively eat up all the earnings and put me in negative cash flow right away. So does this mean investors just buy and hope that that reassessment doesn't happen or isn't that high and when/if it does go up to worst case scenario 2%*purchase price they quickly sell? I've read of other's experiences with this on the forum and some say they've gotten lawyers and professionals to help fight the property tax increases with no success so they are just stuck with negative cash flow properties. Given this type of risk I'm thinking why would anyone invest!? There must me some strategy or way of thinking that I'm missing!!

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  • Patrick Bavaro
    Fort Lauderdale, FL · Member since 2018 · 289 posts · 342 votes
    4y

    @Angel Wu definitely are, Angel! Just got to find them. I’m currently using a turnkey company to build a 4/3 in Cape Coral Florida for $265k all in. Market rent is $2300/mo and post construction appraisal are $375k. The downside? You have to wait a year, but it’s worth It IMO! Feel free to reach out! Good luck

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  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    4y
    Quote from @Angel Wu:
    Quote from @Ali Boone:
    You can get the actual property tax amount if you go to the tax assessor's website for that county and plug in the address. All of that is public record.

    A CoC of 8% has gotten pretty hard for turnkeys, but it's not undoable. I'm working with turnkeys from a provider on the Illinois side of St. Louis-- all the properties hit the 1% rule (believe it or not) and most of them are at least 8% CoC. You can also try to put your own team together outside of the turnkey providers and try to get rent-ready/turnkey properties that way.

    It's not that everyone is suddenly investing for appreciation, but they are having to do a lot more thorough analyses of the other profit centers on a rental property outside of cash flow (the profit centers that actually make people wealthy in REI...cash flow by itself has never been what makes someone filthy rich). Appreciation is a big one, but the biggest one is the hedging against inflation. The more inflation goes crazy, the more profitable a property (with a fixed-rate mortgage) is.

    Thanks for your response Ali. Question regarding property tax…. The properties I've been analyzing all currently have very low property taxes (~1200/yr). When I use that property tax amount in my analysis the COC is very high. However my concern is that once the property is sold it can be reassessed either right away or at any point in the future. Once it is reassessed it can go up to 2% of the purchase price as worst case scenario in the market I'm analyzing. As an investor don't I have to account for a worst case scenario which would mean property tax of ~7000/ year? When that happens that would effectively eat up all the earnings and put me in negative cash flow right away. So does this mean investors just buy and hope that that reassessment doesn't happen or isn't that high and when/if it does go up to worst case scenario 2%*purchase price they quickly sell? I've read of other's experiences with this on the forum and some say they've gotten lawyers and professionals to help fight the property tax increases with no success so they are just stuck with negative cash flow properties. Given this type of risk I'm thinking why would anyone invest!? There must me some strategy or way of thinking that I'm missing!!

    It's not that abstract. Every state/county assess taxes differently and you can find out exactly what that is (so you aren't guessing). Some change with a sale, so based on the new price like you're mentioning (although I haven't run into a market that does as high as 2%), and some base it on property value. Atlanta and Nashville both do that, whereas Jackson County where Kansas City is does 1.35% of the purchase price, and it's reassessed every 2 years. So find out from either Google or a local professional what the property tax is based off of for the area you're thinking of purchasing in. Then use that number in your CoC. That way you know what you can expect at some point down the road and decide if it fits into your numbers as still being a good deal.

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