Cash on Cash vs. Monthly Cashflow (which is more important?)

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Buffalo, NY · Member since 2014 · 371 posts · 146 votes
7y

Both are important, but it depends on your goals... Going to use the cash for retirement/cover living expenses? Cashflow

Want to maximize your returns (doing multiple deals) - CoC

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  • Buffalo, NY · Member since 2014 · 371 posts · 146 votes
    7y

    Both are important, but it depends on your goals... Going to use the cash for retirement/cover living expenses? Cashflow

    Want to maximize your returns (doing multiple deals) - CoC

  • Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    7y

    @Nicholas Ciolino Just my 2 cents here, but if you are really going to pay all cash on the deal (per your report) than the difference is probably a moot point. It's when you leverage the property that you will want to pay attention more to your CoC. (7.6% vs 11.6% for example shown below).

    With all cash you will bring in over $14k/year vs $5k per year financed so WAY more cash flow but your you CoC is a lot less. You didn't 'maximize' your dollars as well as if you had financed it.

    Usually you want to find that sweet spot of leveraging it (keeping a DCR - Debt Coverage Ratio above 1.2) and with high enough CoC that the deal makes sense and you can then use those other dollars to invest elsewhere and rinse and repeat.

    I would finance this deal and then go buy 3 or 4 more just like it for the same amount of cash.  ;)

  • Investor · Nipomo, CA · Member since 2014 · 366 posts · 401 votes
    7y

    Agree with @Mark Bookhagen that it depends on your goals. If you're looking to grow quickly then CoC will be the better marker. Based on your report you'll be getting $921/month. If this amount of stable cash flow is what will push you over the edge toward your end goal, then maybe CoC isn't as important. Also, if you are just not comfortable then that is a personal preference. Some people just don't like it.

    I personally focus on CoC return because I don't have a lot of capital, so I attempt to optimize for maximum CoC return while minimizing risk. A lot easier said than done of course.

  • Nicholas CiolinoPro Member
    OP
    Layton, UT · Member since 2019 · 8 posts · 4 votes
    7y

    Thank you both for the quick analysis and explanation! I overlooked that block and should have just put 20% down.

    I am still learning how to analyze deals and am simply trying to get my reps in to start to identify "good deals."

    Again, thanks for the feedback!

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