Cash flow versus Cash on Cash

[Abdul Azeez]

Folks - I am running some numbers on listings and have the following question regarding cash flow versus cash on cash. Brandon advises a rule of thumb of $150/unit. I have also seen him advocate something greater than 10% on COC. When I run my numbers I am finding the following scenarios. How do I go about determining a good investment from bad based on these? Per unit cash flow seems good but COC seems low. If I need to use both of these metrics, I feel I will have no houses to pick in the market where I am (NJ) and I need to close down my real estate endeavors. Kindly advise. I am getting incredibly frustrated running numbers and I still have hundreds to go.

Property 1 - CF $557 COC 9.28%

Property 2 - CF 449 COC 5.22%

Property 3 - CF 287 COC 4.49%

[Matt Motil]

Rules of thumb are stupid because they are market sensitive and what makes sense where Brandon lives might make no sense where you live on the complete other side of the country. What is a good return in your area? What is a good return in WA state where Brandon lives? I live in Cleveland and those numbers are horrible for our market. 

Here's the way I look at it... you can easily get 5-8% return in an index fund in the stock market. It's safe and sound and you can get it back out whenever you want. So if you are investing in real estate and getting less than 5% then you should put your money into something more liquid that will get a better return. Make sense? It's just a numbers game and a business decision at that point. 

You need to understand your market and analyze enough property where you want to invest to get an idea of what a good investment is in your market. If you want a certain ROI and you can't get it in your market no matter how hard you try (think 10% return in LA) then you need to pick a new market.