what is your cash on cash return on rental properties?

Question

I am in the process of buying my first rental property in Ypsilanti, Michigan and after putting in my offers, if one of them do go through I will be hitting 40% annual return and this is a 3 bedroom with $1100 rent, tenant pays utilities, I take care of repairs, insurance and property taxes. How is everyone else doing as far as returns annually? Thanks

Clay Manship · Answer

@Erin Weiss @David Egger ...and I thought 25% COC was great on my first deal. Guess I need to seek higher returns. Erin, isn't your latest a student rental? Really interested to hear about that once it closes.

My closing date was supposed to be today, but got bumped back to Oct 15. Can't win them all. Got to love bank financing, right?

Steve K · Answer

I aim for 15% COC but that's becoming significantly more challenging here with the bump in prices over the past year.  At this point i'm looking in other states for better returns.

Sam Craven · Answer

For my personal portfolio, and the wholesale deals i send to my investors I shoot for 30%-40% depending on appreciation.

Roy N. · Answer

This just shows how location is a major factor.

Around here, we work hard to get a cash-on-cash between 10 & 15% on a multi-unit (4+) ... but occasionally you find the right property and the right time ... we have one duplex that gave us 23% ... now, after a deep energy efficiency retrofit, our cash-on-cash is down to 18%, but the long term operating costs are more predicable and turnover should be lower.

Purchase costs is the big factor ... if you find a property at <65-75K/unit, it will need a major capital injection before you can stabilise it.

Engelo Rumora · Answer

@David Egger @Erin Weiss

I believe the market in Indy is very similar to Kansas City. There are some great returns but more involvement is required from the investor.

Thanks

Erin Weiss · Answer

That's great @David Egger  Sounds like your high risk investment is worth the headaches!

David Egger · Answer

I bought a duplex in Indy last year, running 55% COC, ($6k cash flow, $9000 cash dp + $2000 in immediate repairs) and the note is only a 5-year.  Rough area, but I wanted a high-risk, high-reward opportunity to cut my teeth.  I'm chasing rent each month, but they always pay late fees, so I consider that $100-$150 a month in late fees my compensation for chasing them.  One side is moving out this month, but I expect to be able to turn it and fill it by November 1, losing only one month's rent.

Erin Weiss · Answer

On my most recent rental, I'll be looking at about a 40% return with 20 percent down on a 30 year with an additional $100 a month cushion worked into my numbers.

Cash Flow ($400 *12) / cash needed ($11,500 ) = 41.7%

Clay Manship · Answer

Looking at around 15-20% conservatively in Indianapolis SFH. My benchmarks are 20% COC--have never heard of SFHs around the Midwest producing 40%+ COC. Seems a little high to me, but what do I know?

Tony Legendre · Answer

20-30 percent with 10 percent down assuming 0 percent vacancy and $100/month expense on top of PITI here in Rio Rancho, NM with SFHs.