What kind of returns are cash buy and hold investors looking for in distressed neighborhoods?
Underwrite this carefully. The reason is that units in lower income neighborhoods often have higher evictions, higher repairs and higher wear and tear on the properties. Matter of fact, there are unpredictable occurrences that can happen. Focus on getting the right tenant who stays long.
Cash on Cash returns - they can be quite high, above 20%. I tend to look at cap rates, the leveraged rate of return, as my basis for analyzing some of these investments.
Lower than c-type there is no equityiiiish. It's top much issues.
From c to b that's another story. Minimum 9% CoC and 15% Levered IRR
For buy and hold...generally above 10%. However, you throw in "distressed" neighborhoods, it'll be higher typically.......with higher risk. You might see closer to 20% or higher when they are paying. These number also presume you are leveraging and not paying all cash. All cash will lower your CoC return. This also depends on where you're investing. I live in SoCal and would never get a good CoC return. I invest in the midwest for better price to rent ratios. But hey, why buy distressed houses when you can buy distressed mortgage notes. Notes baby, notes. Lol. Buy them in your SDIRA, too. Good stuff.
That's a really hard question to answer...if not impossible...without more detail.
The returns should always appropriately reflect:
- market rates for comparable properties
- appropriate trade-off for how much risk you're taking on.
If you're talking distressed, the returns should veer on the higher side of the available market returns. This article is for cap rate, rather than cash-on-cash, but same ideas-
Looks like you are on the selling side, so you should be offering returns fair to market value but that are worth it to an investor in proportion to the level of risk they are taking on with the properties you are offering.
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