Cash on Cash Returns

12 Replies

What kind of Cash on Cash return is typical for a financed, SFH in a blue collar area in FL? From things I read on this site, some people are getting 20 - 30+%... from my calculations I am seeing 5 to 10% on homes I am interested in. Am I missing something (see below figure)?

283,000 Purchase Price
56,600 Down Payment (20%)
20,100 Rennovations
12,000 Closing Costs
88,700 Total Cash
30,000 Annual Rent
2,652 Insurance Annual
3,900 Taxes Annual
1,440 Landscaping Annual
1,200 Pool Annual
900 Vacancy Reserve Annual
1,200 Maintenance Reserve Annual
11,292 Total Annual Operating Expenses
12,600 Mortgage Annual
23,892 Total Annual Expenses
6,108 Annual Net Profit
6.9% Cash on Cash Return

Some areas of the country are going to be much more conducive to rental properties that cash flow well. I don't know anything about Florida real estate, but if I had to guess, I'd say you're going to need to look elsewhere if cashflow is your main concern.

BTW, I think you meant 2,600 as the monthly rent, not the annual.

that price seems really high. What part of fl?

With $30K annual rents, your rent to price ratio is barely 1% (1.06). Also, an annual pool expense of $900 ($75/month) seems very low - those are money pits, and I have a personal rule of not buying rental homes with them (I used to own a pool and spa maintenance/repair company). I too am curious what area this is.

The cash-on-cash returns will be very dependent on the market. For FL, if it's a nice property, a 6.9% cash-on-cash is good. In other parts of the country it'd be horrible. But in FL, because of high insurance and property taxes, if you are profiting at all you are doing good so a 6.9% is fine. You have a lot more appreciation potential there, things are nicer, etc. Makes up (sometimes) for the lower return. It's all about your goals.

Yeah...I agree with @Cal C. : your purchase price is on the high side. I invest in FL. In fact I just bought 2 houses this week. One is $14K and another is $24K. If I decide to fix them and rent them out, the CCR is in the 20-30%.

Also, you can use this spreadsheet to calculate your CCR.
http://www.biggerpockets.com/files/user/Mister4closure/file/wendells-simple-cashflow-analyzer

Thanks all for the comments. I am looking into South Florida - Miami and Ft. Lauderdale. The home is a 3BR 2 BA in an upper middle class area with great schools. So, I guess from what I read, CCR of 5 to 10% is fine based on my target area?

Originally posted by @Rick S. :
Thanks all for the comments. I am looking into South Florida - Miami and Ft. Lauderdale. The home is a 3BR 2 BA in an upper middle class area with great schools. So, I guess from what I read, CCR of 5 to 10% is fine based on my target area?

Interesting upper middle class is blue collar in fl. :). Just kidding I realized you meant white collar.

I strongly suggest you look at a much lower price point to help ensure cash flow and not be hit by longer vacancies. There are a lot less people out there looking for $2,500 a month properties than $1250 a month properties

Vacancy reserve seems on the low side to me for a higher end rental. Pool Maintenance also seems low. Are there any HOA fee's?

Maybe i'm crazy but 12k in closing costs seems very high...I bought one in Ohio last year @ $275k for about 3-4k in closing.

Sorry guys. The weather in Florida isn't so great you want

to work for nothing! I don't see how 6.9% makes sense anywhere.

Passive investments can' t be doing that bad.

In this case The vacancy Factor and " turn-around" expense for

the Average $ 2500/mo rental here are considerably higher than

these estimates I don't see anything factored in for " Management"

for either a PM or Compensation for time spent.

I think the points on " Rentability " of expensive rentals and

the risks of " exposures " on the large investment in one unit should

get one to " pause for thought". You owe it to yourself and your

family that the " hands on" type of investment Real Estate presents

"out-performs" passive investments in the alternative!

Being conservative in your income potential and allowing for

even minimal " over-runs" in expenses wipes out any profit

potential at all here. It's not about Florida it's about the Deal !

@Rick S.  - You should be able to find decent deals in Ft. Lauderdale and MIA, but you need to know the neighborhoods.  I'm not completely familiar with the in and outs of the area so have suck to my neighborhood about an hour north.  I have a couple properties in Boynton Beach that I'm getting 6-7% on.  I'm content with that as I'd need to buy a junk level corporate bond to match that return and I lose the possibility of appreciation for the most part.  But I guess it's about what one's goals are.

Account Closed Thanks for the Calculator!  This makes things much easier!

Originally posted by @Mitchell Jaworski :

@Rick S.  - You should be able to find decent deals in Ft. Lauderdale and MIA, but you need to know the neighborhoods.  I'm not completely familiar with the in and outs of the area so have suck to my neighborhood about an hour north.  I have a couple properties in Boynton Beach that I'm getting 6-7% on.  I'm content with that as I'd need to buy a junk level corporate bond to match that return and I lose the possibility of appreciation for the most part.  But I guess it's about what one's goals are.

@Wendell De Guzman Thanks for the Calculator!  This makes things much easier!

 You're very welcome. Here's the Corrected Version of the Cashflow Analyzer

That return is not bad for true Upper Middle Class.  Typically for me this would only make sense if you were buying the property below market value, and able to refi your rehab and your difference in market value out 6 months later.

Here you are showing $89k cash out.

Hypothetically, if you were to buy at $40k below market (and put $20k in rehab that imrpoves the property by $20k) you can cash-out ($60k * 80%) which is an add'l $48k, while adding very little to your mortgage payment, after a 6 month seasoning.

This would basically double your cash-on-cash returns.

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