Good COC Return Rate???

[Travis Lee]

Hey guys I've been on longtime lurker on the bigger pockets forum and finally decided to jump into real estate investing. I have begun searching for properties and analyzing deals. When analyzing these deals what kind of cash on cash return should I be expecting? Is the COC Return the main metric I should be focused on when running the numbers? Thanks in advance!

[William Sing]

Hey @Travis Lee

It's awesome that you've decided to dive into real estate investing. Cash-on-cash return (COC) is indeed an important metric, but the expected COC can vary based on your location and the type of property you're eyeing.

In some metro areas, especially on the west coast, COC returns might be lower due to higher property prices. In such cases, you might want to consider Return on Equity (ROE) as well, which takes into account the appreciation of your property over time.

Generally, aiming to beat inflation is a good rule of thumb. So, on the lower end, a 4% COC might be acceptable, but for better deals, you'd want to start at 6-7%, especially in metro areas.

If you happen to come across a deal offering a whopping 15-20% COC, especially on your first deal and not through off-market channels, it's a good idea to double-check your numbers. While it sounds fantastic, such returns might raise some red flags. Also, if you're putting down a low initial investment, it could lead to a lower COC.

Remember, each market is unique, and factors like location, property type, and your financing strategy will impact your COC. I recommend talking to local investors and what their buy box would be or COC they'd want. Keep analyzing deals and fine-tuning your approach as you gain more experience!