I think there are always other variables that come into play when discussing cash flow. For example, I look for at least $100/door but on a 15 year note and in a C+ or better neighborhood.
Further, everyone calculates cash flow differently. I calculate cash flow as gross rent - 30%(vacancy, maint, and capex) - PITI = true long term cash flow.
As an example $1000 (rent) - $300 (vac, maint, and capex) - $600 (principal, interest, taxes, and insurance) = true long term cash flow. And remember the principal and interest is based on a 15 year note.
I aim to 10% liquid of the total investment, with a minimum of 100$.
Now I think it also depends on the initial investment, I work with up to 100k in my market and rents are not the same, but if the average rent doesn't come close to a 10% ROI, then I'm out.
I would think IRR is more relevant than just purely CoC; but the reason why you are investing is the driver. If you are purely doing a FIRE method, CoC is all you really care about. If you're looking to build wealth, IRR is more important. If you're looking to 1031 into larger properties, appreciation is more important.
With all of the different reasons why you are purchasing real estate, getting a good deal so you have built in appreciation is by far the most important! Having multiple exit strategies is also important! Not buying a J O B is also important! CoC is one of several things to consider when buying a property.
Example #1: You purchase a $200,000 house at 20% down (40K), and it provides a COC return of 12% ($400/mo.). Woohoo! Oops, you bought it at full price! That's okay though, it provides healthy cash flow! The local market is stale, and has been for years... so your appreciation will not outpace inflation and selling costs... so you're stuck with your awesome CoCROI but have no other incentive. Still a nice buy!
Example #2: You get a great deal on a $230,000 house, by getting an offer accepted at $200,000 with 20% down (same $40,000 down as example #1!). Let's say this house only pays out 6% COC ($200/mo.). Oh no, you're returns aren't amazing upfront. Your friend who bought #1 says his deal is better! The difference is, your house is in an up-and-coming area. It's in a city that is growing. 10 years from today, the house is worth 50% more, allowing you to either A: Cash out Refi, B: Sell and 1031 into much larger properties, or C: Sell and make insane returns on the investment!
Which deal is better? The answer is it depends on what your goal for buying the property is! If you are looking to retire on 'passive' income with CoC, #1. If you're goal is to buy on building wealth, #2 is WAY better.
FIRE Realty Team - Keller Williams5379 Reviews