What is a "good" cash on cash return?

[Mark Mosch]

Hi All,  I was curious to compare notes with others as to what minimum cash on cash criteria they use to determine if a deal is doable, and what is one they would be really happy with.  It seems to be that if your objective is to buy and hold and reinvest your cashflow into new buildings, the biggest determinant of your success is your cash on cash return.  If you are making 10% on all your properties, then you will accumulate money and future properties twice as fast as someone making only 5% - so naturally you want that % as high as you can.  On the BP podcasts they talk about "$100 per unit cash flow is good" but that's not equally true for a building where you paid $100,000 per unit vs $30,000, for instance.  So i was curious to see what criteria some of you use in evaluating whether to do a deal.  Right now i am trying for 10% cash on cash, as that seems to me to be a reasonable return, but i don't know if that's too low or if i should be happy making that.  Any insights would be appreciated.

[Shane Pearlman]

@Mark Mosch I've been asking myself that same question for the last month. At the Santa Cruz BP investor meetup last week I ended up in a debate with @Troy Fisher regarding cashflow Vs equity investing. Cashflow being somewhat hard to come by in the SF bay area.

I have been investing in microloans since 2008 through lending club and have a solid track record of net annualized returns between 7.8 - 8.9%. I feel the odds of getting these returns in the future to be fairly certain, although nothing is for sure. If we are simply talking cash-on-cash, considering that real estate has both higher risk and more work involved, I'd need to see a higher return, probably near 10-12%.

With that said, I have the personal blessings of a solid career I truly enjoy, so cashflow alone is not my primary driver. I really care about the net returns of the deal over its lifecycle. My wife and I are trying to build wealth. 

We are just wrapping up selling a property where the CoC was 6.3% and the net annualized return on the actual sale (forced equity from a remodel / reposition + appreciation) was 37% compounded. While cash if key to keep the property safely under control, I seem to find that the larger returns for our portfolio to date come from strategic growth of equity.

Hope that helps!