What cash on cash are you seeing for MTR?

Question

I’m curious what COC you all are seeing, particularly those who didn’t get a mortgage with a 3% interest rate. I’m considering adding a medium term to my portfolio and at the very beginning of information stage. I plan on ready 30 day stay as well

Bonnie Low · Answer

I have never bought a property specifically intending to rent it out as an MTR - for me it's been a strategy that has developed over time - so I've always done my underwriting as an LTR and for that we set a minimum COC expectation of 12%. I believe this is a sound strategy because if it didn't work out as an MTR, I'd know I could still cash flow it as an LTR and sometimes you just don't know how well it will do as an MTR, especially if you're new. I'll go even further to say that I would not do my underwriting with the expectation of MTR revenue. If it makes money and meets my criteria as an LTR, the upside as an MTR is just gravy. Don't get me wrong, I really like MTRs and believe this space will continue to grow in the future but it can be hard to predict.

Jamie Banks · Answer

Hi Brittany, I bought an MTR back in January at a 6.625% interest rate and my cash on cash is around 25%. In 30 Day Stay Sarah and Zeona recommended at least a 15% cash on cash.

Allan Smith · Answer

For a midterm rental I would say an appropriate minimum is around 17 or 18%, though for me personally I generally don't try for anything under 25%. But that means passing over a lot of deals.

Jamie Banks · Answer

@Veer Gupta Sure!

PP of the property was $117k

My closing costs / set up costs included $9k of closing cost, $8k in furniture, and $5k in repairs

My down payment was 10%

The rent ranges from 2,300 - 2,500, the PITI is 885, and utilities average 400

I spent about 34k in cash all in and I'm making over 10k per year in cash flow (not including the 15% I keep in reserves for vacancy, repairs, and capex)

Hope this helps!

Veer Gupta · Answer

@Jamie Banks

Would you mind breaking down the numbers for your deal that gave you this CoC?

Thank you 🙏

Erin Spradlin · Answer

The cash on cash is impacted by the furniture. (I'm sure you know this, hence the question.) I've estimated an 18 mos-24 mos return on investment for the furniture on midterm rentals- but of course this has to do with how nicely you furnish it, etc. I think as far as cash on cash with midterm rentals, it will depend on where you are at, type of property and season.

Sam McCormack · Answer

Hi Brittney, I sent you a message!

Brandon Elliott-Pandey · Answer

This is a wonderful idea! And well said without the 3% interest rates lol... I'm also curious to see what the returns look like with the market rates these days :-)

(Btw, mine with a 2.5% intrest rate is getting a 62% COC rn bought in 2020)

Bonnie Low · Answer

That's a great question Brittany, and to be honest I have not. Here's why. We have a somewhat unique model. We buy severely distressed properties in far northern CA where we live - literally red tagged properties. We look for properties that have a main house plus an additional space that can be renovated into an Additional Dwelling Unit (ADU). Typically this is something like a detached garage, a shop, or even an attached garage that can be converted. We rehab the main house and rent it out as an LTR. If we've done our underwriting well, the main house will general most, if not all, of our operating costs for both units. Whatever we make off the ADU is where our real cash flow comes from. It can be a lengthy process with a full gut rehab of both units and a cash out refi. We have started using the ADUs as MTRs. This gives us a nice diversity having one unit as LTR and one as MTR and we know we can always pivot back to LTR if we needed to, though that hasn't been an issue. Anyway, it makes figuring out the COC on just the ADU challenging and I haven't sat down and tried to sort it out but now you've reminded me I really should!

Brittany Stradling · Answer

This is so helpful! 12% COC for a long term rental is pretty good, so I can only imagine how it performs as a mid-term. Have you ever gone back to calculate your actual COC for your mid-terms?

What cash on cash are you seeing for MTR?

What cash on cash are you seeing for MTR?

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