Getting 10%+ Cash on Cash return

[Jason Lam]

New perspective investor here and I’m trying to just learn as much as I can reading and listening to BP podcast/webinars. An episode of the podcast the investor said he’s looking for at least 20% cash on cash return while on the webinar I heard the investor was looking for at least 12%.

Running the numbers assuming rents bring in roughly 1% of purchase price and I put 20% down I’m getting closer to 5%-6%. Am I missing something here?

Here is an example of my calculations

Purchase price: $150,000

closing cost: $3000

Rental income $1,500/mo

Mortgage assuming 20% down at 5%: $645

Insurance and tax: $200

Vacancy (5%): $75

Repairs (8%): $120

Capex (8%): $120

Property manager (10%): $150/mo

Cashflow: $190/mo

Cash on Cash: $2280/$33,000 = 6.9%

How can 12%+ or even 20% be possible with 2% rent?

[Tanner K.]

@Jason Lam absolutely, I'm very new myself and creative options are my best options. I approved for FHA with about 3.375% and even with that it's hard to make the numbers work. Mortgage insurance kicks you in the behind when working with banks, it adds a useless monthly expense depending on the loan size. Also, banks are slow, super slow. It took me over a month to get approved for an FHA loan and actually purchasing a property takes forever through a bank. So my solution has been to look for people willing to seller finance. Its a way where you can acquire a property very fast compared to banks, and sellers usually don't ask for a huge down payment. My numbers almost always work better using seller financing with a balloon payment after 5 or so years, then obtain a mortgage to pay them off at 5 years. The only issue is finding good deals with a seller willing to finance. Although I cant speak from experience, Im in the same spot as you right now but I can give you advice on what I know. Feel free to message me whenever with questions and I'll try to help!