CoC Return if Using 20Y Mortgage

[Connor D.]

Hey all,

I am in the process of searching for my first deal. While I am generally inclined to hunt for an 8-10% "base hit" cash-on-cash return, I have a question as it relates to financing. I am inclined to do a commercial loan so that I can place the property in an LLC at purchase.

That said, my understanding is that most commercial loans are on a shorter amortization profile (i.e. 20 years). With the shorter amort profile, there's a big drag on the CoC return.

Do you still use CoC return as a target if using a loan with a shorter amortization profile, or do you look differently (e.g., using an IRR)? I may also be looking at this the wrong way, so forgive me for being new!

Thanks!

[James Allen]

Connor, Cash flow is cash flow either way. If you want a 10-12% CoC return then that is what you should be trying to attain. It doesn't matter if it is 20 or 30 year amortization.