What is your target cash on cash return?

Question

Hi BiggerPockets Community,

After analyzing a deal, what cash on cash return are you targeting to identify if this is a good deal? What other metrics are you evaluating and which numbers are "good numbers?"

Thank you!

Cheers,

Andrew

Steven Goldman · Answer

@Andrew Diamond I agree with @Scott E. that while cash on cash return is important the key to real estate is to select locations and properties that will appreciate over 5-10 years. If you are holding the property the gold will be in the increase in value, the tax benefits and the increasing equity through payment of principal. This is why when we reach the end of a long upward market many investment property owners sell to take advantage of the increase in equity, They than bank the cash and pay taxes if necessary. They buy back in when the market has depreciated from a recession. Think long term not short term.

Scott E. · Answer

I haven't looked at any buy & hold deals in ~6 months since the rates climbed up. Numbers just don't make sense at the moment.

But 6 months ago my target cash-on-cash return was 7-8%. A lot lower than most people aim for, but I am very particular about location and only was looking to buy in "A" areas.

What's nice with rentals is that you might "only" be making 7% cash-on-cash when looking at your cash flow compared to cash invested. But when you pile on appreciation, tax benefits, and principal pay down, your total return is much higher.

Billy Daniel · Answer

I personally don't look at COC. I care about positive cash flow and appreciation. Over the long term, COC doesn't mean much anyway (IMO).

Victor Saumarez · Answer

I think it’s arbitrary. It can be what ever you want it to be. One way to establish it would be to do an expected rate of return used for bond valuation. You add the risk free rate, inflation and credit risk to arrive at a number. The problem at the moment with that formula is inflation is so high you’ll never find a return to meet it. 5% used to be the ‘normal’. Many investors now dispute that.

Eliott Elias · Answer

Not shooting for any COC return. Trying to buy as cheap as humanly possible in this weird market. I want my returns to be scary

Ricardo Hidalgo · Answer

It is becoming harder and harder to set a target since rates are constantly moving. I am seeing people settle for 4-7% with a better equity position in appreciation based markets close to the beach.

Basit Siddiqi · Answer

my goals are 8% cash on cash return and 4% appreciation

What is your target cash on cash return?

What is your target cash on cash return?

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