What's a good CoC number?

Question

Hi all,

Got a question for seasoned veterans around here. After reading some of the discussions, I'm not sure if I fully understand what makes a good CoC number. The numbers I see are around 20%, give or take some, which to me, seems out of reach.

Let's take a look at this hypothetical property (managed by PM)

Price: $90,000

Initial investment (DP, rehab, taxes, insurance, PM fee): $35,000

Estimated rent: $1,400

Cash flow after expenses (including PM fees): ~$420

CoC%: ~9.5%

Does this number look good? I'm working with a PM, and their CoC numbers are nowhere near 20%. Most are around 5% up to 10%. I must be missing something :)

Joe Villeneuve · Answer

That isn't a simple answer, but there a a number of ways to do it.  It would be impossible to explain in this format.  If you're interested P.M. me and I'll fill you in.  Her are a couple of ways that are pretty simple though:

1 - One of the methods is to NOT just do a 20% DP, but pay 100% cash.  This allows you to refi out all of the money (assuming you bought it right).

2 - In your case, you could sell equity in your property to another investor that has limited funds, and wants to get into a Turnkey deal.  This would be cheaper in most cases than getting your money back in a refi loan or a 2nd loan on the property.

Franky Maslim · Answer

@Joe Villeneuve Oops...somehow, tagging your name on a smartphone didn't work

Joe Villeneuve · Answer

Are you paying cash for all those costs you stated?

If that's the case, you have spent $35,000 and will have received $5040 back in the first year from the cash flow.  That works out to a CoC return of 14.4%.

In any case, I don't like to accept anything less than 100%...as in I want all the cash I spent back to me within that 1st year.