First Investment Cash on Cash ROI Target

4 Replies

Hey everybody.

I'm completely new to this and have recently developed a passion to become financially independent. This is my first blog post on BiggerPockets and am still learning, so please be kind if I get my terms wrong or ask more questions. 

Recently I attended this webinar on buying you first few properties. 
How to Buy Your First, Second, or Third Rental Property!

In the webinar Brandon mentioned that he looks for properties that have a 16% cash on cash ROI. Is this a feasible rate to accomplish starting out without a network of individuals who can find you the best of deals? Or should I target for something lower, closer to 6-9% ROI?

Is it okay to target these lower returns as it will be building equity? Currently I am paying rent and I feel like the money is just constantly leaving my pocket. I have thought about buying a primary residence but I am constantly reminded that your house is not an asset but a liability.

I may have two potential hard money lenders (relatives), but as I don't want to count on this my other option be to get a FHA loan with PMI. This definitely eats into the cash flow and will make it a lot harder to find a high ROI.

I am also living in Nashville, TN and want to start investing close to home. I feel like this market may already be overpriced and I am having trouble finding properties that has cash flow unless the offer is a total low-ball. Does anyone have any quick insight on this market?

PS. If anyone here lives or is passing through Nashville and would be interested in grabbing a coffee please let me know!

@Isaac Summers

Welcome to the forums. 

I'll touch on a few of the topics you asked about. Yes, Nashville's market has appreciated a ton over the past couple of years. No one knows if the mkt is at its top, no one knows where it will go. My personal guess is it's going to remain strong even through recessions due to continuous job and population growth, especially from high priced mkts like NY, California, Chicago where business and individuals are moving to Nashville by the truck load. 

Cash on Cash ROI is not measurable on a whole basis and needs to be looked at on a deal to deal basis. The reason is that it ALL depends on your $ invested. If you buy a property cash that rents at 1% of it's value/mo you are looking at about 7-8% ROI. There are 1000 factors that can go into this but a general rule of thumb. If you leverage, your ROI goes up, along with your risk.

A personal residence is a huge liability, however; you CAN make it into an asset by house hacking. Based on what you have said I would look into going this route. You can house hack anything w 2 bedrooms. 1 for you, 1 for a tenant. Doesn't need to be a duplex. It can be a SFH too, or apt.

I would try and avoid the FHA loan IF you can. Banks are giving conventional loans now w much less than 20% down. As low as 3% down. FHA loans have all sorts of added fees and they take forever to fund.

@Luka Milicevic  

Thank you for the welcome!

I'll touch on a few of the topics you asked about. Yes, Nashville's market has appreciated a ton over the past couple of years. No one knows if the mkt is at its top, no one knows where it will go. My personal guess is it's going to remain strong even through recessions due to continuous job and population growth, especially from high priced mkts like NY, California, Chicago where business and individuals are moving to Nashville by the truck load.

I'd agree with you on the job market being very strong in Nashville. It will be interesting to see if/how the next recession affects it. I have noticed that the median house prices in Nashville have seemingly hit a floor for the past two to three years that it has been returning to. 

Cash on Cash ROI is not measurable on a whole basis and needs to be looked at on a deal to deal basis. The reason is that it ALL depends on your $ invested. If you buy a property cash that rents at 1% of it's value/mo you are looking at about 7-8% ROI. There are 1000 factors that can go into this but a general rule of thumb. If you leverage, your ROI goes up, along with your risk.

Thank you for bringing this up. I know that both are important to look at. I'm just not sure what sort of threshold I should look for to have a good feeling about a deal. Since I don't have the means to cash purchase a house, I would have to probably heavily leverage my first and most likely do a HELOC to expand on to another.

A personal residence is a huge liability, however; you CAN make it into an asset by house hacking. Based on what you have said I would look into going this route. You can house hack anything w 2 bedrooms. 1 for you, 1 for a tenant. Doesn't need to be a duplex. It can be a SFH too, or apt

This is great! I have been looking into it and I would love to get a duplex. Sadly, being newly married, I think that we can both get a lot of value from living in a place of our own.

I would try and avoid the FHA loan IF you can. Banks are giving conventional loans now w much less than 20% down. As low as 3% down. FHA loans have all sorts of added fees and they take forever to fund.

I was recently talking to someone else about this. They mentioned that you can always find brokers who can have some great deals but you have to do your due diligence with these and make sure that the terms don't have anything in them that would put you in a tough situation. There was also something called an 80-10-10 loan that may be an option? Have you come across these types of loans before?

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