Out of State investment & expected CoC
Member since 2020 · 2 posts · 1 vote
Out of State investment & expected CoC
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Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes
1y@Bhavin Patel I have the benefit of being familiar with the model you are looking at and the model that @Jordan Ray is referring to. You two have completely different goals and passivity requirements. How do I know, I recently set Jordan up with a home that he is renovating to create a long term rental, but he and his team are doing all of the work and will have to find the residents and they happen to live right here in Memphis where they are doing the work where he lives and works in real estate full time.
The moral of this story is that you have to be careful when comparing deals and % returns because most everyone has different metrics and evaluation criteria. If you were an active investor and shooting for 4% CoC return that would be nuts. But this is also dependent on how much month you put down and various other things. Are you considering the equity pay down that your resident will be providing for you which goes directly toward to your net worth, not your bank account.
The question is one aspect, who and how they answer is what you need to be weary of.
8 Replies
- 1yJordan RayBusiness MemberReal Estate Agent · Memphis, TN · Member since 2023 · 642 posts · 331 votes
Quote from @Bhavin Patel:
Would you buy your first out of state investment if it's barely doing 4% CoC on the initial investment especially Memphis area?
Not at all. I am easily getting 40%+ returns when using hard money to do BRRRR deals in Memphis. 4% is a terrible return.
Jordan Ray - eXp Realty5112 Reviews - Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes1y
Not enough info to say one way or another. If this is a BRRRR deal where you're leaving very little money in and it's operating at break-even, then maybe it makes sense. But if this is a traditional 20-25% down deal and it's only doing 4% CoC, that's not particularly attractive unless there's another upside at play.
A lot depends on your goals—some investors value appreciation more than cash flow, while others prioritize stability over returns. If this is a strong area with real appreciation potential, maybe it’s worth it. But there are just too many variables to give a definitive answer.
What’s the long-term plan for this deal?
- Member since 2020 · 2 posts · 1 vote1y
@Travis Biziorek long term plan is buy & hold. I was referring to a turnkey investment with tenant already placed & 30% down with interest rate in high 5s. I'm not big on cash flow. I was just more concerned as everyone talks about that you should atleast make 6-8% CoC on any investment property. And a lot of the turnkey investment I'm seeing they hardly hit 4% after all expenses and mortgage.
Also I'm not sure if Memphis is truly an appreciating market being high crime city per data or I am just overthinking too much being first time trying to invest out of state and doubting myself.
- Investor · Arroyo Grande, CA · Member since 2014 · 1k+ posts · 1k+ votes1y
Quote from @Bhavin Patel:
@Travis Biziorek long term plan is buy & hold. I was referring to a turnkey investment with tenant already placed & 30% down with interest rate in high 5s. I'm not big on cash flow. I was just more concerned as everyone talks about that you should atleast make 6-8% CoC on any investment property. And a lot of the turnkey investment I'm seeing they hardly hit 4% after all expenses and mortgage.
Also I'm not sure if Memphis is truly an appreciating market being high crime city per data or I am just overthinking too much being first time trying to invest out of state and doubting myself.
Got it. I would look at what makes sense for you and not other people's opinions or arbitrary rules. If you're happy with a 4% CoC, potential appreciation, and mortgage pay down... who's to say it doesn't make sense?
I know it's tough, but try not to let others' opinions influence you. Everyone is at a different spot in their journey and what makes sense for someone may not make sense for the next person.
- Specialist · Long Beach, CA · Member since 2011 · 877 posts · 397 votes1y
Depends on what you are looking for. If it's in a great area that has lots of appreciation potential, then maybe it works for you. Many people invest in expensive markets to break even because the appreciation is there.
- Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes1y
@Bhavin Patel I have the benefit of being familiar with the model you are looking at and the model that @Jordan Ray is referring to. You two have completely different goals and passivity requirements. How do I know, I recently set Jordan up with a home that he is renovating to create a long term rental, but he and his team are doing all of the work and will have to find the residents and they happen to live right here in Memphis where they are doing the work where he lives and works in real estate full time.
The moral of this story is that you have to be careful when comparing deals and % returns because most everyone has different metrics and evaluation criteria. If you were an active investor and shooting for 4% CoC return that would be nuts. But this is also dependent on how much month you put down and various other things. Are you considering the equity pay down that your resident will be providing for you which goes directly toward to your net worth, not your bank account.
The question is one aspect, who and how they answer is what you need to be weary of.
- Member since 2023 · 15 posts · 14 votes1y
Quote from @Bhavin Patel:
Would you buy your first out of state investment if it's barely doing 4% CoC on the initial investment especially Memphis area?
Hey Bhavin, I'm an investor in Memphis with a few long term rentals. Jordan is my agent, he is great. I recommend him. What are you counting in your expenses? Are you including capex, vacancy, etc.? My goal is at least 10% CoC return taking into account only mortgage, taxes, insurance, and prop mgmt fees and my total loan cost and rehab. I haven't included capex, vacancy, maintenance or any other non guaranteed expenses as I have savings for that. I probably should though. I will say my 2 concerns with Memphis is lack of appreciation compared to elsewhere and tenant base can be suspect. I've had 2 vacancies in less than a year. No damage to the property and they rent again within 2 months so not a huge hit. But I'm keeping an eye on that. Also property taxes are going up this year in Memphis with new assessments. That will reduce our return. Good property management and an agent you trust is key. I'm thinking of changing to A/B areas of Memphis instead of C for better tenants. But if there is low appreciation and CoC is low, is it even worth it? I'm not sure. Happy to connect with you to share thoughts. I think this is good to diversify your investments. Here is a likely unpopular opinion. Avg profit is about $300 per month on a rental. I average that day trading momentum stocks pre market daily and I'm not a trader by profession. While turnkey is easier and I've done it, it's probably not worth it compared to other investments. In fact, I'd go as far as saying if you don't BRRR using hard money or another loan to limit out of pocket expenses and repeat this to scale, then this real estate investing is not worth it. Buying a property to make $200-$400 per month kind of sucks to me. I've yet to BRRR doing this myself but I plan to at some point. Good luck.
- 1yBernice RetzloffPro MemberMemphis, TN · Member since 2024 · 234 posts · 100 votes
Hey @Bhavin Patel!
A 4% cash-on-cash (CoC) return is on the lower side, especially for a market like Memphis, where many investors aim for higher returns. In general, Memphis is known for strong cash flow, so if a deal is only hitting 4%, I'd take a closer look at expenses, property management fees, or whether rents are under market. That said, if there's strong appreciation potential, low maintenance costs, or room to improve rents, it might still be worth considering. If you're looking at specific deals and want a second opinion, I'd be happy to take a look and help you find something with stronger returns!
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