Cash on Cash Expectations

[Anthony Arender]

I invest in the Northern Kentucky market, across the river from Cincinnati.  It is next to impossible to find decent properties that cash flow for an 8% coc.  Should I settle for less in order to get my cash out of the bank and into a property before rates go up, even if it is only at a 3% coc? Or wait for a dip?  Some guidance here would be appreciated from investors with more experience than I have.

[Jim Kittridge]

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

[Joe Villeneuve]

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

[Anthony Arender]

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

[Joe Villeneuve]

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

[Anthony Arender]

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

[Anthony Arender]

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

 So just to be clear, when you analyze a deal, you are looking at whether the cash flow alone is going to replace your initial cash investment within 5 years?

[Joe Villeneuve]

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

 So just to be clear, when you analyze a deal, you are looking at whether the cash flow alone is going to replace your initial cash investment within 5 years?

Yes.  What else would there be to replace it?  Equity isn't cash.  Equity is a separate issue/return.

[Anthony Arender]

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

 So just to be clear, when you analyze a deal, you are looking at whether the cash flow alone is going to replace your initial cash investment within 5 years?

Yes.  What else would there be to replace it?  Equity isn't cash.  Equity is a separate issue/return.

Jim says 8% CoC is a reasonable expectation, you're saying 20% is your minimum. What am I missing?

[Anthony Arender]

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

 So just to be clear, when you analyze a deal, you are looking at whether the cash flow alone is going to replace your initial cash investment within 5 years?

Yes.  What else would there be to replace it?  Equity isn't cash.  Equity is a separate issue/return.

So correct me if I'm wrong. Jim says 8% CoC is reasonable. You say 20% is your minimum. Jim is in for the long haul and you are going to exit in 5 years. Does this explain the wide difference in the desired CoC?

[Ben Lin]

3% in KY is definitely a no for me. I may accept 3% in CA but definitely not in KY. I won't even accept 3% in CO and FL.

3% return in KY means the property is way too expensive. You should look harder or buy in another location with better return.

Good luck to you. 

[Joe Villeneuve]

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Anthony Arender:

Quote from @Joe Villeneuve:

Quote from @Jim Kittridge:

I would not recommend bending your investment strategy to the market. 

8% CoC with 75% leverage is a reasonable metric. You don't need to go below that and frankly, I wouldn't recommend it unless you have adequate reserves and income to withstand property issues and market cycles.

Jim is right about not adjusting your needs to the market.  Your just negotiating against yourself and rationalizing that you ended up with a good deal...which you won't.
The problem with CoCReturn is it only applies to the first year.  Although the return in the first year is important, it doesn't mean every year will have that same return.  What's most important is how many years it will take to get your cost/cash (DP) back to you.  This is when you start to make a profit...the faster the better.

 Thanks for the advice.  What is a good rule of thumb on how many years before I get my original cash investment back?

I want to see it back in my hands within 5 years max...so I can take advantage of the appreciation and sell before I start losing money and to exponentially gain with my money.  Another reason for 5 years is that's when you start seeing those pesky/expensive CAPEX events that steal the CF that you've made previously.

 So just to be clear, when you analyze a deal, you are looking at whether the cash flow alone is going to replace your initial cash investment within 5 years?

Yes.  What else would there be to replace it?  Equity isn't cash.  Equity is a separate issue/return.

So correct me if I'm wrong. Jim says 8% CoC is reasonable. You say 20% is your minimum. Jim is in for the long haul and you are going to exit in 5 years. Does this explain the wide difference in the desired CoC?

...yes, with an asterisk.  I too am in it for the long haul, I'm just not "hauling" my equity in one property.  I'm moving it so I don't lose money as it grows through appreciation.

[Chris Webb]

Hi @Anthony Arender, I would ask what is an average deal in the market you are looking in. There is someone who is earning a profit and they probably bought a great deal. However, you cannot find a great deal until you know what an average one looks like. Review your market and run your ConC calculation for a few deals and look for similar numbers. If you find a few that are similar, that is probably average. Now just look for deals that are better than the average. Good luck and keep the faith, REI is a long term play and the deal of a lifetime happens weekly.

[Joe Villeneuve]

Quote from @Chris Webb:

Hi @Anthony Arender, I would ask what is an average deal in the market you are looking in. There is someone who is earning a profit and they probably bought a great deal. However, you cannot find a great deal until you know what an average one looks like. Review your market and run your ConC calculation for a few deals and look for similar numbers. If you find a few that are similar, that is probably average. Now just look for deals that are better than the average. Good luck and keep the faith, REI is a long term play and the deal of a lifetime happens weekly.

Why would you deal in averages?..and why would you accept the market you are currently investing in?

If you base your deal on the average deal, you run just as much of a risk of that deal going south as it could go north, and since the average is made of more than 3 deals (1 high, 1 low, 1 avg), then the odds of any deal ending up at "average" is far from a possibility...so why invest based on it?

If your market doesn't deliver what you "need" it to deliver, then don't invest there.  Find a market that does.  The market isn't flexible to your deliver your needs.  Your needs shouldn't be flexible to your market.  However, the market you choose can be, and should be, based on those inflexible needs.  That's why they are called "needs".

[Chris Webb]

Quote from @Joe Villeneuve:

Quote from @Chris Webb:

Hi @Anthony Arender, I would ask what is an average deal in the market you are looking in. There is someone who is earning a profit and they probably bought a great deal. However, you cannot find a great deal until you know what an average one looks like. Review your market and run your ConC calculation for a few deals and look for similar numbers. If you find a few that are similar, that is probably average. Now just look for deals that are better than the average. Good luck and keep the faith, REI is a long term play and the deal of a lifetime happens weekly.

Why would you deal in averages?..and why would you accept the market you are currently investing in?


If you base your deal on the average deal, you run just as much of a risk of that deal going south as it could go north, and since the average is made of more than 3 deals (1 high, 1 low, 1 avg), then the odds of any deal ending up at "average" is far from a possibility...so why invest based on it?

If your market doesn't deliver what you "need" it to deliver, then don't invest there.  Find a market that does.  The market isn't flexible to your deliver your needs.  Your needs shouldn't be flexible to your market.  However, the market you choose can be, and should be, based on those inflexible needs.  That's why they are called "needs".

Hi @Joe Villeneuve, I think you may have misread the post. I said look for great or "better than average" deals.

I am saying that someone is investing in every market and earning a profit. I agree that if you cannot find your metrics in one place look at other places. However, I would also argue that you need to know your average deal and see if their is movement in to different inflection points. This cannot happen by looking at a market only a few times and then returning a few months later, at that point it is to late. Knowing your average deal is what is critical and often overlooked by investors.