New Member Santa Clara, CA - Low RE return: What did I do wrong?

[George Li]

Hi folks,

My name is George and I am a part-time real estate investor from silicon valley with two years experience. I am a NOI driven investor, cash flow is all I am after and I only take home value appreciation as a gift. I have made three deals in the last two years, two SFHs in Seattle and one SFH in Las Vegas. Despite of labeling myself as a cash flow orientated investor, ironically all my past deals have pathetic NOI (4 - 5%) but appreciate like nuts (30 - 40%). I was lucky enough to catch up with the now ending hype in Seattle and I know such opportunity is very rare.

My current RE investment plan focus entirely on cash flow and NOI but after browsing through at least a hundred properties (SFH, MFH) in multiple markets all over the country (Seattle, Denver, Las Vegas, Austin, Dallas and Houston), I realize my final NOI will still probably remain under 6% at most 7%. Yes, I do plan to leverage but I found it will do little with rate being high. Taking my Las Vegas SFH property for an example, the sale price is $260,000 and can be rented for $1450/month. With $100,000 down and 5.125% 30-year mortgage, after property tax, insurance and property management cost, it generates around $400 cash flow a month, leaving a cash on cash return of ~4.8%. A MFH may give a better yield but it will still not exceed 7% according to my calculation.

I have seen plenty of people on this forum claiming their 10%+ cash on cash return but I simply found it is hard to achieve. Is such a high return only exist in lower-end properties (<$200k) in cheaper markets? I am located in one of the most infamous real estate market in the country and it is impossible to find properties with high gross rent multiplier in local markets. I prefer to invest out-of-state due to countless cash-for-key horror stories in California and rely heavily on professional property management companies.

I wonder is there anything wrong with my targets/methodology/goal or it is just a norm under current high-interest fed-up environment? How do you guys achieve higher returns? Any suggestions? Should I just turn to REIT with promising 8%+ yield instead? I have also looked into NNN Commercial real estate but only find its return not so appealing, not to mention its risk and low liquidity. Or maybe I just demand too much?