Lower COC but good IRR- good investment ?

5 Replies

Hi,

My COC on potential deal is lower (conservative) around 2-6%. But IRR is more around 20-32% (depending on my final purchase price .

I am long hold on this property , in an area where I believe it will really gain in value (this is the icing on the cake ;-)

What are your thoughts on a unit that has slightly lower cash flow and COC return, but solid IRR? (Principal pay down + cash flow / down payment )??

How are you calculating IRR? To have such a large IRR with low Coc I figure you probably have a strong gain at disposition?

The assumptions that feed into the calculation are almost more important than what the calculation says. Until it's all said and done they're just numbers on a spreadsheet!

@Taylor L.

Hi, for me IRR was more the annual principal pay down plus annual cash flow divided by down payment giving me a higher percentage.... since my cash flow is only 50-100$ monthly , that's why my coc is lower.

But add in around 600-700$ monthly principal pay down it changes things....

Originally posted by @Chris Klingemann :

Hi,

My COC on potential deal is lower (conservative) around 2-6%. But IRR is more around 20-32% (depending on my final purchase price .

I am long hold on this property , in an area where I believe it will really gain in value (this is the icing on the cake ;-)

What are your thoughts on a unit that has slightly lower cash flow and COC return, but solid IRR? (Principal pay down + cash flow / down payment )??

Not a problem,...no wait,...it's a terrible idea,...uhhh,.....ummmmm,.....kind of hard to answer your question without knowing the exact numbers we are talking about. Not the actual CoC or the actual IRR either. What are the numbers that generated the CoC and the IRR?...the exact numbers,...not some range of numbers.

Originally posted by @Chris Klingemann :

@Taylor L.

Hi, for me IRR was more the annual principal pay down plus annual cash flow divided by down payment giving me a higher percentage.... since my cash flow is only 50-100$ monthly , that's why my coc is lower.

But add in around 600-700$ monthly principal pay down it changes things....

If you are using your own cash to do the faster paydown, you are actually decreasing your IRR...and your cash flow...and, your cost.

It does, but that paydown isn't really realized until you cash out, which will undoubtedly lower your IRR since it pushes out the timeframe. IRR is a tricky metric, I don't think it's particularly good to rely on solely. As Joe said, it's tough to really say much definitive without knowing more specific numbers.