Maximizing Cash on Cash (Need Advice)

[Matt Rosenbohm]

Hey Everyone,

Thanks for taking the time to read and give input! Here is my scenario:

I want to make sure my rental portfolio is at its maximum potential without over-leveraging. I have been so focused on my flip business I have not taken serious time to evaluate my current portfolio performance (other than basic p&L's, etc)

When I first purchased my rentals they were performing at about 20%-25% Cash on Cash. BUT, now with all the equity growth an principle pay down they are performing around 6% cash on cash. In other words I have a ton of capital making a tiny 6% cash on cash return. Good problem, but just can not seem to make up my mind on how to proceed, would love your input... I have about 2 Million in equity and willing to leverage at 80% LTV

1. Refinance and Purchase More Properties 

*I am in the Northern Colorado Market and I can find new (off market deals) rentals for about 10-12% cash on cash in our current market. I have considered buying out of state to get better returns

2. Sell and 1031 into Large Multi Unit (apartments)

    *current properties are mostly 2-4 plex student housing and single family

3. Continue to Pay Down and Payoff Properties

I have gone over the pro's and con's of these (and others) options many times, rather than list all of that I would love to get any input you wise BP'ers have! 

(obviously I know all advice is market specific, but would just like to get your general input)

Thanks,

Matt

[Travis Sperr]

@Matt Rosenbohm I have had this same internal conversation more and more frequently lately .

The math will always indicate that buying more is better - more appreciation, higher rent rolls, easier to grow net worth, etc. So getting cash out and buying more is the easy spreadsheet answer. But because you asked the question and considered option number 3 there is something in your gut that says it may not be what is best for you. 

Assuming you plan to stay invested in Northern Co - I think you will find that once you start looking to buy more rentals that the deals don't perform as well as what you have already purchased with out increasing your overall debt for down payments. If you are going to 1031 - explore a reverse exchange - in a competitive market it allows you to be more selective and not forced by the timeline to buy a marginal deal. 

Going to a bigger apartment deal (assuming in CO) are trading at such low cap rates and in a raising rate environment isn't that attractive to me. I have preferred a larger portfolio of 1-4 units - easier to liquidate if you need to sell just one building. 

Option 3 isn't out of the question - sure it doesn't provide the highest cash on cash or return on equity - but it does provide easy steady income for the future. I am paying off properties now - once I achieved the monthly gross cash flow I wanted it makes sense to me to preserve it and take my foot off the gas on acquisition.

One last thought - You mentioned not spending a lot of time on your portfolio until recently - I was guilty of the same and found that if I more effectively manage the properties I already own - I was better off than buying additional units.

Just one persons opinion  - good luck!