Cash on cash utility questions

[Luke Machen]

Hey all - I'm new to the RE investing game and have some (probably dumb) questions regarding cash on cash returns. As some background, I'm looking for turnkey or close to it and would be using a management company since I have a busy full time job. 

I was recently listening to a podcast and in this particular episode, the investor targeted CoC of >5%. Playing around with the deal analyzer on the website, it seems like this would be somewhat unheard of. In my market, median price for SFH is around 270K and median rent is ~1750K. Hypothetically, you'd need >2K rent on a 250K home to get more than 5% CoC (ballpark numbers with a few assumptions, mgmt fees, putting 30% down, etc), and it seems very unlikely this would exist where I'm looking.. Correspondingly I have a few questions

1. Are most of you including things like property insurance, etc in your CoC calculations?

2. If my goal is turnkey/buy and hold properties, should CoC really matter? Should I be prioritizing equity/appreciation?

3. I'm looking locally to start out (mid size city in North Carolina) - is the answer a different market?

Thanks in advance

-Luke

[Chris Seveney]

Quote from @Luke Machen:

Hey all - I'm new to the RE investing game and have some (probably dumb) questions regarding cash on cash returns. As some background, I'm looking for turnkey or close to it and would be using a management company since I have a busy full time job. 

I was recently listening to a podcast and in this particular episode, the investor targeted CoC of >5%. Playing around with the deal analyzer on the website, it seems like this would be somewhat unheard of. In my market, median price for SFH is around 270K and median rent is ~1750K. Hypothetically, you'd need >2K rent on a 250K home to get more than 5% CoC (ballpark numbers with a few assumptions, mgmt fees, putting 30% down, etc), and it seems very unlikely this would exist where I'm looking.. Correspondingly I have a few questions

1. Are most of you including things like property insurance, etc in your CoC calculations?

2. If my goal is turnkey/buy and hold properties, should CoC really matter? Should I be prioritizing equity/appreciation?

3. I'm looking locally to start out (mid size city in North Carolina) - is the answer a different market?

Thanks in advance

-Luke

The way I calculate cash on cash is It cost me X dollars out of my pocket to buy the property and after the first year I had Y dollars flowing back into my pocket. Divide the two and that is CoC return. In todays environment of back to historically normal interest rates and higher home values - now really is not a great time to buy. Back prior to covid, real estate investing was buying strategically and somehow adding value. That went away during covid when you could be in a coma stranded on a deserted island and done nothing to an asset and it appreciated. This gave many the false sense that real estate is simple but its not. As we get back to a more traditional market CoC may not matter for people.

For example for me, CoC does not matter as I buy in A/B areas and I hold long term so I am comfortable knowing even if I have zero a slightly negative CoC to start over the long term it will turn and I will end up with a nice return after many years.

Hope this helps