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Updated about 10 years ago on . Most recent reply

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254
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56
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John Matthews
  • Investor
  • San Diego, CA
56
Votes |
254
Posts

Is high cash on cash return with traditional financing possible?

John Matthews
  • Investor
  • San Diego, CA
Posted

I'm not sure if this is the right forum (I never can figure out which to post in!), but here goes:

Is it possible get great cash on cash returns using conventional (non-FHA, non-owner occupied) loans and your own money as the 20-25% downpayment?

As I can see it, the factors affecting the % return are the following:

  • Purchase price / rental income ratio
  • Decreasing the loan interest rate
  • Decreasing maintenance costs
  • Increasing leverage (potentially the biggest factor as I can see)

Is there anything that I am missing here to increase the cash on cash return? So let's look at a simple example:

  • Purchase price: $200,000
  • 25% Downpayment: $50,000
  • 2% Closing costs: $4,000
  • 4.5% 30 year fixed rate mortgage: P&I = $760 / mo

Let's assume gross rental income is $3,000/mo (1.5% might be reasonable in Philly?). Using the following rough approximations:

  • 50% rule: $1,500/mo
  • NOI: $3000-$1500-$760 = $740

Yielding a cash on cash return of 16.44% (NOI Annually / Cash down or 740*12/54000). That's not terrible, it's certainly greater than the stock market on average, but it would be great to be over 20%, right? Or is that unrealistic?

Are there some creative ways of bumping that number up, while still using traditional financing that I'm missing out on? Or am I relegated to creative financing if I want to sweeten my cash on cash return? Any comments are appreciated!

Most Popular Reply

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1,316
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569
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Nathan Emmert
  • Investor
  • San Ramon, CA
569
Votes |
1,316
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Nathan Emmert
  • Investor
  • San Ramon, CA
Replied

Roll your closing costs into the loan and you'll bump up that CoC return another 2% or so.

Honestly, these are the types of deals I tend to look for.  Solid returns and pretty easy to find.

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