Is 12% CoC and $100 of free cash flow per unit too much?

Question

Today a realtor I made an offer told me, in a few words, that my goals were crazy. Sure, it was a low ball almost 1/3 less of the asking price. But the offer is what make sense for my goals: 12% CoC and $100 of free cash flow per unit. My offer was rejected.

I am a newbie and also a foreign national, investing long distance from another country.  My obstacles have been many, but I will not resign.

One of my biggest challenges is that I have not been able to finance the properties with less than 25% down payment and a 6.5% interest rate.  Even so, I have managed to buy 3 properties in Texas with 22 doors and aligned to my goals this year.

What do you think? Is it really crazy what I am doing? What is your advise?

Joe Villeneuve · Answer

First, 12% CoC and $100/unit isn't too high at all.  For me, it's too low....WAY too low.  That's one vacancy away from losing money on a year.

Don't listen to the REA.  Make your offers based on what's best for you...not based on what it will take to get a property.  You don't want properties, you want deals...as defined by your goals.  Don't give in.

Kenneth Garrett · Answer

@Julio Cordero

The asking price of any property is irrelevant.  The only number that matters is the number your willing to pay for it.  It must be a good deal for you.  I agree with @Joe Villeneuve 12% CoC is ok, but I would shoot for much higher.  I tend to look at 30% and higher.  It’s all relative to your own particular goals.  This is what makes real estate investing so great.  There are multiple ways to make money.  There is no one system.

Good Luck.

Kiera Underwood · Answer

@Julio C. it depends on the market you're trying to get that in. In OKC that COC and cash flow is common if you're working with the right people. In Texas I imagine the taxes are making it tough tot get that?

Account Closed · Answer

@Julio C.

$100/ door isn’t cashflow, it’s a number on paper. It’s a hope. And a razor thin one. Over a 5 years period it is almost a certainty that $100/ door monthly turns into $0 (if you’re lucky).

Joe Villeneuve · Answer

Correct.  If you go to the Doctor and say, "it hurts when I raise my arm".  The first thing the doctor will tell you is, "don't raise your arm" (or in this case, don't invest in that market).

If that Doctor only tells you to "not raise your arm", then find another Doctor (or in this case, another REA).

Jon Kelly · Answer

@Julio C. You may want to consider using another agent. You want someone to challenge you and educate you on what is realistic, but you also want an agent that understands and is aligned with your goals. If an agent is telling you your goals are crazy, when they appear very reasonable (or even low), then you may want to look for another agent.

Don't call yourself a newbie. You have 3 properties and 22 units under your belt. What is your CoC and monthly cash flow on those properties? When you find a new agent, tell them about your numbers on your existing portfolio and your goals for future properties.

Joe Villeneuve · Answer

How did my statement turn into a 50% CoCR?

What's misleading is is assuming that all markets are the same, or very similar, and that just because someone can't do something in their market, it can't be done in a different market(s), and/or that all REI is done with the same strategies.  Different markets, using different strategies, produce different results.

Goals are never unrealistic.  The lofty ones are just harder to achieve...but worth the effort.

Cory Carlson · Answer

Okay I want a 50% CoC in Portland, OR. Find me that or I walk...

What’s backwards is misleading clients with unrealistic goals. need to differentiate goals from pipe dreams.

Joe Villeneuve · Answer

Actually, what's limiting is when you let the market dictate your goals.  That's backwards.

Priority #1:  GoalsPriority #2:  Market you invest in (that brings you your goals)

Cory Carlson · Answer

12% CoC in my market is damn near impossible to find, even in the small apartment world of $1-10 million. Although my market sees pretty considerable appreciation, i think just defining a goal on CoC is a little limiting.

I suppose depending on your goals and time horizons if cash flow is your play then great. But if you’re a high earner, looking for tax protection, high cash flow would be less important than capital/equity growth. No reason for 6.5% rate though.... seeing residential loans around 4% and commercial loans even lower (big depends mark here though).

On the other end of the coin - anything that is positive leverage perhaps meets your goals for growth (assuming here). Any CoC that exceeds the cost of financing you’re effectively making money on borrowed money, and that’s even before any principle pay down or appreciation.

In my experience, if you’re getting a 12% CoC your in a flatline market, and at the end of the day your total return (after-tax + principle pay down + appreciation-X%) ends up being near the same.

It sounds like you have goals - and that’s cash flow, if the market doesn’t present opportunities for that goal, then move to another and/or stay persistent.

But to answer your original post, if someone came to me in Oregon and said i need a 12% CoC, that would be pretty limiting to some tertiary southern/coastal areas.

Good luck!

Is 12% CoC and $100 of free cash flow per unit too much?

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