Money down kills Cash on Cash return

[Shane Humes]

I am a brand new investor.  I have not purchased anything yet, but I have discovered a few opportunities. 

My minimum criteria is $100 per month cash flow, and a cash on cash return of 10% annually. I have plugged in the numbers for one specific property, and the cash flow meets my minimum requirements, but the cash on cash return does not because the minimum down payment banks require. I have talked to every bank in my area, and they all require 25% down. Since I am new, conventional mortgage is the only type of lending I am familiar / comfortable with. I looked at the BRRRR strategy, but I'm not certain a conventional loan refinance would cover everything.

This brings me to my questions.  As experienced investors, would you proceed knowing that the cash flow is there, but without the desired Cash on Cash return?  As experienced investors, what alternate financing processes would you use?

Thank you for any responses you provide.

Shane

[Andrew Johnson]

Shane Humes What you're running into is a "pick your metric" issue that's a prevalent challenge on BP. The person who has great cash-on-cash return almost certainly has bad (or suboptimal) return-on-equity. And when you start looking and low-dollar properties you can have small dollar amounts making a big shift in cash-on-cash returns.

Just for easy math (ignore impracticalities):

$70K purchase price means $17,500 down.

So you need $1,750 in cash-flow to make your 10% goal.

If you get $1,500 it's an 8.5% cash-on-cash return. So taking a "bad" 8.5% cash-on-cash return to a "glorious" 10% threshold is $20 per month.

It's the price of a pizza or the monthly accumulation of a weekly trip to Starbucks. In short, it's nothing of consequence. But you will get people looking at a worse property to achieve a percentage metric than translates into very little marginal income.

Tip: If $20 per month represents such a material change that it would sway a buy/no-buy decision...don't get into real estate :) You will have WAY bigger issues over the years to contend with.