Realistic Expectations?

[Dan Dyckman]

I am just trying to get started, and have been playing with the rental calculator.  What is a reasonable cash-on-cash rate of return to expect when investing in a rental property?  It would be great to get an idea so that when it comes I can pull the trigger withs one degree of confidence.

[Doug McLeod]

Depends on your market and strategy. If you buy and/or rehab homes where there are low Days on Market and get all systems good and functional and have a good lease making tenant responsible for first chunk of most maintenance items, you should be able to rent quickly (minimizing vacancy), minimize maintenance costs, and avoid much capex for 5-7 years. If you do that AND manage the property yourself AND the rents are 1.1-1.3% of price, THEN I look for 20% after PITI and HOA. But if I can't manage it myself due to distance, I look for 25+% after PITI and HOA (still assuming getting all things functional or fairly new). Those are first year numbers.

But I can tell you some folks on BP would laugh at this as poor returns (the 2% rule in certain markets) and others would wish they could get that in their market.  Keep in mind markets are very local.  Your immediate area may be very difficult to find good deals, but within 2 hours drive you may find several great areas where you can find distressed properties and turn them into cash flowing rentals. 

Best wishes with your investing.