High-yield, “low-risk” M/F submarkets with double-digit cash-on-cash %
Seattle, WA · Member since 2015 · 16 posts · 7 votes
High-yield, “low-risk” M/F submarkets with double-digit cash-on-cash %
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Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes@Lambros Politis Using your $1M property example with a 30% expense ratio (which is lean in most instances), the monthly cash flow would have to be $15,000 in order to achieve a 10% cash on cash return. You are likely traveling to some pretty rough neighborhoods in pursuit of that type of cash flow and envision your operating expenses being higher than 30%...maybe not in year 1 but if viewed through a multi-year period most likely. Low risk and these types of neighborhoods don't mesh.
If your goal is to generate 10% returns I would recommend looking into lending. You can put first position liens on much better quality real estate than the real estate you would be buying and can easily generate the rate of return you are seeking between points and interest payments.
31 Replies
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Lambros Politis Cap rate is is an unlevered analysis calculated by dividing the NOI by the property value. Loan interest is not an expense used in arriving at the NOI, therefore interest rates don't directly impact the cap rate analysis. Real estate markets may trade at higher cap rates when interest rates are high because buyers are forced to value the real estate lower in order to make the acquisition pencil. Can you achieve 10%+ cash on cash while using leverage in a good markets? Sure. However, 10% cash on cash unlevered and "low risk" markets don't belong in the same sentence.
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Stuart, thank you for your very detailed and insightful response. To confirm, in a relatively stable market, an unlevered 1031 exchange of a million-dollar asset in a high-yield tertiary market—with no debt—would not realistically generate a 10% cash-on-cash return in year one? Appreciation is not a factor for me at this time.
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Lambros Politis Using your $1M property example with a 30% expense ratio (which is lean in most instances), the monthly cash flow would have to be $15,000 in order to achieve a 10% cash on cash return. You are likely traveling to some pretty rough neighborhoods in pursuit of that type of cash flow and envision your operating expenses being higher than 30%...maybe not in year 1 but if viewed through a multi-year period most likely. Low risk and these types of neighborhoods don't mesh.
If your goal is to generate 10% returns I would recommend looking into lending. You can put first position liens on much better quality real estate than the real estate you would be buying and can easily generate the rate of return you are seeking between points and interest payments.
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Stuart, thank you again for your insights - you are the man! While hard/soft money lending is outside my area of expertise, I'd like to discuss a potential levered IRR scenario.
Consider a $2.1 million property acquisition (10 cap) using a 1031 exchange with a $715,000 down payment. Assuming:
- - $300,000 gross scheduled income
- - 30% operating expense ratio (resulting in $210,000 NOI)
- - $1,385,000 loan at a 6.7% interest rate
My calculations indicate a first-year levered cash flow of $99,560, yielding a 13.94% cash-on-cash return. I'd appreciate your review of these figures and your perspective on the feasibility of this strategy in a relatively stable market. Am I on the right track, or are there significant risks I'm missing? Many thanks in advance for your insight into this.
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
Levered real estate will generally produce a better cash on cash return. The one part of your analysis that needs clarity is the amortization schedule. Shorter amortization schedules will produce less cash flow (less cash on cash return), but at the same time will generate principal paydown quicker. As interest rates decrease cash on cash increases both due to the fact finance charges are lower and as an indirect consequence you can often obtain higher leverage (meaning less cash invested) because the 1.2-1.25 debt coverage ratio most lenders seek as part of their underwriting takes into account interest payments. Return is magnified by principal paydown and appreciation which are both realized when the property is either refinanced or sold.
After learning to identify the correct investment opportunities, learning to utilize debt (responsibly) is the single most important tool an investor can master. Using the correct loan product dependent on the circumstance is so powerful to property performance and portfolio growth. I didn't realize it at the time but through my first few jobs I was fortunate to work alongside teams who were true real estate finance experts and learning through observation was critical to my personal real estate investing growth.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Lambros Politis:
I'm looking to liquidate my modest real estate portfolio in the PNW via a 1031 exchange and move into a high-yield tertiary market. I'm targeting a double-digit cash-on-cash return in year one. Even with these significantly elevated interest rates, are there markets where sufficient cap rates remain on multifamily to achieve that target? I don’t really care about appreciation, I mainly focused on significant cash flow with minimal tenant headaches.
You could get this in Class C and D areas but "low risk" - that is the furthest from a low risk investment. The other comments are mainly spot on.
You want cashflow, its going to be on high risk assets not low risk assets.
7e investments53 Reviews - Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Thank you, gentlemen, for the valuable insights - your feedback is very much appreciated. So based on what I'm hearing, it sounds like achieving a 10% cash-on-cash return in a B-class multifamily market in year one is pretty unlikely. Is that a correct understanding? Is it time to manage my expectations and set my sites on a lower yield goal?
- Member since 2018 · 1k+ posts · 1k+ votes1y
1. As others have said, you can have low risk. You can have high yield. You cannot have both.
2. I have to ask: How can you think that anybody could possibly guarantee you minimal tenant headaches? - Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
My real estate portfolio, located in the Pacific Northwest (technically a primary, A/B class market), still presents tenant headaches. I understand I can't completely avoid problematic renters. I'm curious, statistically and generally, if double-digit cash-on-cash returns are achievable in B/C+ class multifamily markets. I'm aiming for solid returns (10% cash-on-cash?) in a moderately low-risk market, given my low risk tolerance. I'm wondering if such a market exists outside my Pacific Northwest bubble. As always, your feedback is welcome and appreciated. Thank you for your contribution to this post. If I need a reality check, I'm open to that, and value experienced investors' insights to manage expectations.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Lambros Politis:
My real estate portfolio, located in the Pacific Northwest (technically a primary, A/B class market), still presents tenant headaches. I understand I can't completely avoid problematic renters. I'm curious, statistically and generally, if double-digit cash-on-cash returns are achievable in B/C+ class multifamily markets. I'm aiming for solid returns (10% cash-on-cash?) in a moderately low-risk market, given my low risk tolerance. I'm wondering if such a market exists outside my Pacific Northwest bubble. As always, your feedback is welcome and appreciated. Thank you for your contribution to this post. If I need a reality check, I'm open to that, and value experienced investors' insights to manage expectations.
It's possible...... Possible not probable.
It's not a viable path through acquisition but through development..... possible.
Nobody in their right mind would sell at such because they simply don't have to, there is no shortage of buyers happy to out bid your desired landing.
But via building, it's possible.
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
@Lambros Politis It appears you are focusing solely on the rental income at arriving at your cash on cash return. Most generate their wealth through appreciation, not cash flow.
You are an attorney and presumably make a decent living so this should be viewed as a passive investment, correct? Focus more on the appreciation and principal paydown and this should lead you to better quality real estate. Chasing cash on cash returns through rental income will generally do the exact opposite.Owning rental real estate is quite simple as long as you have patience and are interested in making sustainable investments. Consider cash flow as being necessary to cover operational expenses, maintain healthy reserves so you sleep well at night and help secure the most favorable debt. If your cash flow does those things and allows you to own well located real estate with strong fundamentals the rest takes care of itself.
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Thank you, Stuart, for that sage advice. As you know, being an attorney yourself, it can be a Sisyphean task to making a consistent 'good' living. I'm looking to create a slight shift in my lifestyle, where I can ease up a bit on practicing and supplement my income with more passive revenue streams. So, if you were a 'new' investor, but with your current skillset and knowledge base, and had $750,000 in net sales proceeds from a recent downleg property sale, where would you recommend investing in multifamily real estate?
- 1yStuart UdisPro MemberAttorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
Prioritize equity over cash flow. Equity in C/D located real estate is often merely paper equity...equity represented in an appraisal report that is less likely to materialize in an arms length transaction. If you are going to buy in a lower tier neighborhood, it should be one that has strong fundamentals and a thesis that supports rapid appreciation in a short period of time. Remember most become wealthy through the real estate equity they accumulate, not the cash flow. The equity can later be re-distributed into better cash flow vehicles (real estate or otherwise) while taking advantage of advantageous tax rates.
If you want to bill fewer hours, the more equity you accumulate, the sooner that date will arrive. This can be achieved quickest through development projects where you force equity or appreciation where you identify markets with strong fundamentals that experience rapid appreciation. Also, view your ability to bill hourly for services as a huge advantage. Your skillset will allow you to transition while continuing to generate income. The ability to generate income when making the shift to real estate is a challenge for most and is why many fail because most never get to a point where their real estate alone is sustainable. Your ability to bill for your time also makes you a more marketable borrower in the eyes of banks therefore view your law license as an asset.
- Developer · Moscow Idaho · Member since 2024 · 224 posts · 143 votes1y
Leave communist Seattle and come to Idaho, USA. Where people are still normal and you can evict tenants but generally you don't have to because people pay their bills here. You don't have to leave but your money can. I would advise both. We do get pretty great returns. I build rentals in Moscow, CDL, Sandpoint and a new project in McCall. If you are taking a gain, you might want to consider doing an Opportunity Zone. You can get good appreciation, cash flow, and a much better tax shelter that way.
I would go with Stuart. You can leverage some and increase your return quit a bit. If you are really conservative to 50% you can loose your but doing that.
I would not go into bad neighborhoods. You get no appreciation, and you might not get any rent from time to time or for 6 to 9 months at a time.
Matt
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Sage advice from Stuart and Matt. Thank you, gentlemen. I appreciate your time and thoughtful responses.
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
So where am I parking my money? Ohio, Idaho, Tennessee, Indiana, or North Carolina?
- 1yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
Quote from @Lambros Politis:
So where am I parking my money? Ohio, Idaho, Tennessee, Indiana, or North Carolina?
If I were you, I would try two markets and see which one performs better. A lot depends on the team you put in place versus the market you choose.
- Real Estate Agent · Nashville, TN · Member since 2025 · 126 posts · 62 votes1y
Quote from @Lambros Politis:
So where am I parking my money? Ohio, Idaho, Tennessee, Indiana, or North Carolina?
Honestly, I would go by the place in which you know most of their "Backyard" of. What I mean is that you honestly can park your money anywhere in the U.S. if you know the right market, connections, and areas from people that have stayed in that area.
I am an investment agent in Tennessee, so I am more of an expert in that area. They are also people that can help you within the other areas you have listed as well. If you ever get free, I would save a weekend to at least feel out the city that draws more of your attention. If you like it, connect with people around the area (like property managers, local popular agencies, and also investors!)
@Lambros Politis
2.1MM purchase, 300k gross, 30% expenses seem extremely hard to find. If you can find these all day you should quit being a lawyer and become a commercial broker, because this property is worth way more than 2.1MM. Even with self management 30% ratio is hard to achieve.
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Quote from @Josh C.:
@Lambros Politis
2.1MM purchase, 300k gross, 30% expenses seem extremely hard to find. If you can find these all day you should quit being a lawyer and become a commercial broker, because this property is worth way more than 2.1MM. Even with self management 30% ratio is hard to achieve.
So is a 40% operating expense ratio more realistic, Josh?
- Member since 2025 · 39 posts · 15 votes1y
Great question—I’ve been digging into this myself as a developer and operator. With rates where they are, double-digit cash-on-cash returns in year one are tough but doable in tertiary markets if you focus on cash flow over appreciation, like you’re aiming for. Markets like SE USA (think rural Georgia) still offer multifamily cap rates in the 7-8% range, especially on smaller deals (12-24 units). Leverage can push your returns higher, though tenant quality and management are key to keeping headaches low.
We actually have 12-24 buildings breaking ground right now, designed for cash flow—projected 7-8% cap, 10% cash on cash, turnkey with our team handling stabilization. Could be an option for your 1031 move out of the PNW. DM me if you want to dive into the details!
Curious what others are seeing out there—any hot tertiary markets still delivering those yields?
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
So an 8% cap on multifamily in a *relatively* stable market with a *fair* tenant pool is unrealistic, even at these elevated interest rates?
- 1yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
Quote from @Lambros Politis:
I'm looking to liquidate my modest real estate portfolio in the PNW via a 1031 exchange and move into a high-yield tertiary market. I'm targeting a double-digit cash-on-cash return in year one. Even with these significantly elevated interest rates, are there markets where sufficient cap rates remain on multifamily to achieve that target? I don’t really care about appreciation, I mainly focused on significant cash flow with minimal tenant headaches.
are you open to ground up development or new construction strategies like build to rent, single family home infill, small multifamily 2-3 unit infill, or land development? those are the strategies that get the returns you talk about in Columbus Ohio that we work on
Section 8 Launch52 Reviews- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
Quote from @Robert Ellis:
Quote from @Lambros Politis:
I'm looking to liquidate my modest real estate portfolio in the PNW via a 1031 exchange and move into a high-yield tertiary market. I'm targeting a double-digit cash-on-cash return in year one. Even with these significantly elevated interest rates, are there markets where sufficient cap rates remain on multifamily to achieve that target? I don’t really care about appreciation, I mainly focused on significant cash flow with minimal tenant headaches.
are you open to ground up development or new construction strategies like build to rent, single family home infill, small multifamily 2-3 unit infill, or land development? those are the strategies that get the returns you talk about in Columbus Ohio that we work on
Robert, tell me more. Ground up development or new construction - what's the completion date on these builds? This would be a 1031 up-leg for me, so I cannot have my sales proceeds sitting in a qualified exchange account for longer than 180 days (45-day identification period).
- 1yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
Quote from @Lambros Politis:
Quote from @Robert Ellis:
Quote from @Lambros Politis:
I'm looking to liquidate my modest real estate portfolio in the PNW via a 1031 exchange and move into a high-yield tertiary market. I'm targeting a double-digit cash-on-cash return in year one. Even with these significantly elevated interest rates, are there markets where sufficient cap rates remain on multifamily to achieve that target? I don’t really care about appreciation, I mainly focused on significant cash flow with minimal tenant headaches.
are you open to ground up development or new construction strategies like build to rent, single family home infill, small multifamily 2-3 unit infill, or land development? those are the strategies that get the returns you talk about in Columbus Ohio that we work on
Robert, tell me more. Ground up development or new construction - what's the completion date on these builds? This would be a 1031 up-leg for me, so I cannot have my sales proceeds sitting in a qualified exchange account for longer than 180 days (45-day identification period).
have you selected an intermediary yet? our strategies are very technical. That's if you wanted to buy land and build them within that timeframe you are permitted to as long as you can close within 180 days. these are 3 story walk up triplexes urban infill with tax abatements. we have 8 approved so far. you could also look at land plays to grow. i don't know how much you are receiving from proceeds but I could do a few financial models to show you. I attached renderings of the 8 triplexes we will be putting together this year. I do ground up development and new construction and land entitlement in Columbus Ohio in hotel, multifamily, single family spec, and build to rent so normally we would talk to an intermediary and walk them through the options and together you could make the decisions. all of these are built 25% below market. the triplexes cost 395k to build and rent for $5400 a month.
Section 8 Launch52 Reviews
@Lambros Politis
40% expense ratio is realistic for class A or at least B+. But then your cap rate will be lower. Unless you do a big value add you just can’t find numbers close to what you mentioned for a “safe” asset.
We just finished a project that we consider a good deal and it panned out like this. Purchase 600k, rehab 1MM, gross rents 275k. This took over a year to complete and we acted as the general contractor and were on site more days than not. This is the only way I know to achieve these results. It’s a full time job (literally it’s my job) and we will self manage and probably be at 35% expenses (which is a little lower than normal as we already took care of all the capex for 5-10 years)
To buy this building turnkey would be at least 2.5MM if not more.
In Indianapolis we perform this work for clients and they do a little better than market, but still have to pay a GC (us) for a year of our time plus their interest or opportunity costs on having so much cash out for that time period. Usually this setup is a better deal than buying turnkey as you don’t have capex lurking over you, but it’s still a headache as anything worth anything is.
Not trying to burst your bubble or anything. Just wanted your plan to be realistic. Good luck!
- Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
@Josh C. You're not bursting my bubble at all; in my line of work we call that effectively managing client expectations around a stated objective. So, some quick back of the napkin math for the theoretical turnkey scenario you described above:
- Purchase price: $2.5 million
- Down payment: $850K
- Loan amount: $1.650 million
- Gross Scheduled Income: $288K
- Operating expense ratio: 35%
- NOI: $178K
- Debt service at 6.7% interest = $128K annually
- Before tax cash flow = $47,1999
- Cash-on-cash Return in Year 1 = 5.55%
A $47K / year return on an initial investment of $850K seems pretty modest, no? Unless my math is completely off here? Thank you in advance for any insight you can offer into the matter. - Seattle, WA · Member since 2015 · 16 posts · 7 votes1y
So then what's a guy to do when interest rates are higher than cap rates in most Class B/C markets? My IRR model looked much better three years ago.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Lambros Politis:
So then what's a guy to do when interest rates are higher than cap rates in most Class B/C markets? My IRR model looked much better three years ago.
Short answer is this is not the market to be investing for cash-flow.
This is the market to invest for value-add plays, and appreciation plays.
That said, there is many different ways to go about this. Many different lanes of opportunity. But to seek a 2014 market where one can very literally buy a paycheck just is no longer the case.
@Lambros Politis
You are right. Way too modest for almost everyone. I was just trying to give an example of getting the numbers you mentioned and what it took. Completely rehabbed place like ours described is in the 6-8 cap rate realistically. Also, we just (this month) have it fully leased so don’t have accurate trailing 12 to verify my expenses, I haven’t had it appraised and said that off the cuff.
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