How much Cash-on-Cash ROI and Cash Flow is enough on BRRRR?

Question

I have been a BP member for a few months, and have watched/listened to every webinar/podcast I have been able to get my hands on. On those, @Brandon Turner usually mentions (for BRRRRs) that a desirable cash-on-cash ROI should be over 8% (ideally 12%), and that cash flow should be at least $100 per door. Both of those seem pretty reasonable, and I agree with them.

My question is regarding the parameters to get to those numbers. I have seen Brandon use the BP calculators to get these numbers, which typically take into account 25% of the rent for vacancy, property management, repairs/maintenance and capital expenditures; while others (i.e. local wholesalers) calculate them without taking those into account (i.e. Cashflow=Rent-PI-Taxes-Insurance)

Of course Brandon's approach brings more peace of mind, and make more financial sense, but I would like to hear some different perspectives on how everyone out there is calculating (and taking decisions) around these ... What is your ideal cash-on-cash ROI and minimum cash flow? (SFHs and small MFHs)

Thank you.

Axel Norvell · Answer

@Chuck Peck You want to look at your cashflow after PITI, property management, cap ex, vacancy and repairs. If you don't, you're not being true to your cashflow.

Imagine if you ignore those numbers, and in a few years you have a huge capital expenditure (such as a needing a new roof, A/C unit etc). If you didn't account for that in your numbers, your profit is now immediately wiped out.

Saving for those things ahead of time makes you honest with the cashflow that you'll actually be getting (even after worst-case scenarios).

Mike D'Arrigo · Answer

@Martin Rubio Unless a wholesaler is a buy and hold investor themselves, they don't necessarily have a good grasp on what all the true expenses are. Many wholesalers start out with little money themselves and are trying to build up capital to do their own buy and hold. It is not uncommon to see vacancy and maintenance omitted from their projections or are far understated. Vacancy and maintenance are a fact of life of buy and hold real estate and must be taken in to account. This can vary by market and even within a market by property class. You'll have to figure out what the right factor is in your market. As far as cash on cash ROI, everyone has their own goals and criteria but personally, I think and 8% return and $100/mth rent cash flow is fairly anemic, however, our markets are Indianapolis and Kansas City which are high cash flow markets. In your market, Houston, you have some of the highest property taxes and homeowners insurance in the nation which really chews up your cash flow. Those numbers will be more typical in your market.

Ali Boone · Answer

Hey Martin. I love Brandon but I haven't actually read his stuff to know the details of everything he suggests. But I know of turnkey properties that well-meet those 8% and $100 requirements....so I'd think I'd want much higher than that for BRRRRs since I'm putting work in. If those were my only requirements, I could just buy a turnkey and not have to put in any work. Maybe his pitch is that the additional money is made on the forced appreciation? And it'd certainly be market-dependent. But those return numbers seem low to me.

Andrew Syrios · Answer

That's not really the number to look at with regards to figuring out what is enough. The key is to be all into a property for 75% of its market value (preferably a little less to cover the loan fees). That way you can refinance out all of your investment. Of course, you still want it to cash flow. My goal is at least $100/door, but that goal is a bit more arbitrary.

Eric James · Answer

With the BRRR strategy you ideally refi out all your investment. This makes ROI investment infinite and almost meaningless. I wouldn't buy any SFH that only cashflows $100/month. I shoot for $250+ for places that rent for around $900/month and would want even more for a place that rents for more. If you have an unexpectedly long vacancy for whatever reason this could wipe out all your profit for a year or more if you only cash flow $100 per month.

Alexander Felice · Answer

don't rely on those who stand to profit off you, to teach you how to make profit.

Learn how to analyze deals and what YOUR requirements are then apply the underwriting, disregard the comments of those who have conflict of interest. I run about a ~45% or lower expense ratio, once you have a few properties it's easier because you'll have real world figures to apply.

I use the BRRRR method with extensive rehab and low purchases costs so my cash outlay is 100% covered by the mortgage, which bumps up the CoC quite a bit ;) putting 25% down is more common, but treacherous

Andrew B. · Answer

a wholesaler who is trying to sell you the property is going to leave out the "expense reserves" you mention because it inflates the "Cash flow" and makes you more likely to buy it.

Eugene Beard · Answer

that is such a broad question so yo know what the number one answer is right?

It depends.

it depends on your investing strategy, it depends of what market your investing in and most importantly it depends on you goals.

for example one investor can say i like working with people in D areas so im fine with 6% COC return but my ROI has to be 20% in 5 years.

The next investor that wants turn key properties SFR with 10% ROI wouldnt wish that criteria on their worst enemy.

So what people say on here wont help you make a decision about your criteria.

NOW that being said heres my 2 cents! I like to try to get $150 per door for a 4 plex with a 10% COC. IDC much about appreciation or have a set ROI.

I figured out what i wanted by analyzing rental rates in area along with prices to figure out what is possible from jump and  started from there. Because my goals are aligned with staying in a specific area and not out of state investing. but if  the numbers you want to get ($150 a door & 10% COC) are only out of state you can either follow your numbers or stay as a local investor. but if you dont know which type of investor you wanna(aka your goals) be its gonna be impossibel to make that choice

Chuck Peck · Answer

Hi Eric,

When you say your wouldn't by any SFH that only cashflows $100/month, are you talking about $100 after you deduct vacancy, repairs and capital expenses?  I'm working on my first deal and according to my numbers after rehab, refi cash out at 75% LTV, i'll be renting the property for $880/mo.  If I deduct PITI, property management, capital expenses, vacancy and repairs from rent, it cashflows at $25.  If I add the capital expanses, vancancy and repairs back in it cashflows at $225/mo.  Does this seem like a good deal?

How much Cash-on-Cash ROI and Cash Flow is enough on BRRRR?

Most Popular Reply