$100 Cashflow, 3-5% COCROI worth it?

Question

Hi all, I'd like to make my first RE purchase. I'm looking at a market that feels promising - steadily increase in population YoY, job growth is strong, diverse job types are increasing, and new activities are popping up. However, I want to buy a multi-family home in this location, which is possible. However, with my analysis I am only seeing around $100-$150 cashflow in the area which makes my COCROI around 3-5% max. In looking at the YoY increase for both house prices and rent, it looks steady and strong. I wonder if this is a scenario where it is still good to purchase, hold (which is what I plan to do), and over the next few years it will likely steadily increase my CF. Would love to hear advice on this.

Joe Villeneuve · Answer

Too many assumptions.  Basing any investment on future events you have no control over isn't investing...it's speculating.

Paulina L. · Answer

@Jon Puente - this is helpful, thank you! I'm actually looking at OOS, so I think appreciation is not as high as West coast markets. I looked at Zillow data, and am seeing that the home prices (unfortunately does not include type, just all types) is growing YoY. Is there a different way you'd analyse appreciation?@Alex L. $100-$150 is after all the $ aside. I used 6-8% for maintenance/repairs, 11% for Property Management, 5% for capex and 5% for vacancy to very conservative in case of any issues.

Alex L. · Answer

Is that $100-$150 cash flow considering money put aside for maintenance/repairs? If not, I personally wouldn't touch that.

Jon Puente · Answer

Hey Paulina,

I am assuming you are looking to buy in CA and this primarily means one thing - Cashflow is hard to get with how high prices are, however appreciation will most likely be very strong the longer you hold.

In the world of real estate, most transactions are on a spectrum:  They either cashflow heavy, appreciate heavy, or a decent blend of both (with neither being heavy).  California is an appreciation play longterm, so if you can sustain making small amounts of cashflow in the beginning and make sure those rooms are occupied, then yes I would.

However, if having 1-2 vacant units for a sustained amount of time will make you go under, then I would not buy that property.  Cashflow on paper is not always cashflow in real life.

Great Question!

$100 Cashflow, 3-5% COCROI worth it?

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