First Investment Cash on Cash ROI Target

[Isaac Summers]

Hey everybody.

I'm completely new to this and have recently developed a passion to become financially independent. This is my first blog post on BiggerPockets and am still learning, so please be kind if I get my terms wrong or ask more questions. 

Recently I attended this webinar on buying you first few properties. 
How to Buy Your First, Second, or Third Rental Property!

In the webinar Brandon mentioned that he looks for properties that have a 16% cash on cash ROI. Is this a feasible rate to accomplish starting out without a network of individuals who can find you the best of deals? Or should I target for something lower, closer to 6-9% ROI?

Is it okay to target these lower returns as it will be building equity? Currently I am paying rent and I feel like the money is just constantly leaving my pocket. I have thought about buying a primary residence but I am constantly reminded that your house is not an asset but a liability.

I may have two potential hard money lenders (relatives), but as I don't want to count on this my other option be to get a FHA loan with PMI. This definitely eats into the cash flow and will make it a lot harder to find a high ROI.

I am also living in Nashville, TN and want to start investing close to home. I feel like this market may already be overpriced and I am having trouble finding properties that has cash flow unless the offer is a total low-ball. Does anyone have any quick insight on this market?

PS. If anyone here lives or is passing through Nashville and would be interested in grabbing a coffee please let me know!

[Luka Milicevic]

@Isaac Summers

Welcome to the forums. 

I'll touch on a few of the topics you asked about. Yes, Nashville's market has appreciated a ton over the past couple of years. No one knows if the mkt is at its top, no one knows where it will go. My personal guess is it's going to remain strong even through recessions due to continuous job and population growth, especially from high priced mkts like NY, California, Chicago where business and individuals are moving to Nashville by the truck load. 

Cash on Cash ROI is not measurable on a whole basis and needs to be looked at on a deal to deal basis. The reason is that it ALL depends on your $ invested. If you buy a property cash that rents at 1% of it's value/mo you are looking at about 7-8% ROI. There are 1000 factors that can go into this but a general rule of thumb. If you leverage, your ROI goes up, along with your risk.

A personal residence is a huge liability, however; you CAN make it into an asset by house hacking. Based on what you have said I would look into going this route. You can house hack anything w 2 bedrooms. 1 for you, 1 for a tenant. Doesn't need to be a duplex. It can be a SFH too, or apt.

I would try and avoid the FHA loan IF you can. Banks are giving conventional loans now w much less than 20% down. As low as 3% down. FHA loans have all sorts of added fees and they take forever to fund.