Analazying Rental Property: 8% Cash on Cash ROI Good???

Question

Hi BP,

I'm purchasing a vacant lot for $10k in the 78207 zip (West Side, Prospect Hill). A new build will cost me $60k but I'm budgeting for $75k. I can receive $1,000 a month in rent for a 3/2. When I run all of my expenses and income, I come to about 8% cash on cash roi. Is this a decent return for San Antonio?

Thanks for any help!

Michael Guzik · Answer

@Roger Covin IMO I would stay away from that part of town but that's just me. There are plenty of other areas here with less crime, better tenants, better prices and a greater chance of appreciation. If you think that it is a great deal and your gut is telling you to go for it then do what you think is best! Good luck and keep on grinding!

Ernesto Hernandez · Answer

8% Cash on Cash is extremely low. An index fund will give consistent 8% returns.

Land does not depreciate either so the tax advantages that come with a building aren't there either.

Just something g to consider.

Lluis Bacardi · Answer

Hi Roger,

If it was me I wouldn’t get in this area for this return, on a normal build and hold transaction.

But being new build, you repairs and capex will probably be very low for a few years so you could ride the first years and then sell when the big capex items start to be due.

On the other side, your build budget seems quite low, is based on experience?

A 3/2 will be likely 1000sqft and that would be $60xsqft. Have you checked if the lot has utilities? Only impact fees for water/sewer will be over $5k.

If anyone can build in SA for that price a nice basic house, I can keep them busy for a long time :)

Good luck!

Jim Goebel · Answer

@Roger Covin

Roger are you sure a new build (from scratch) will cost you $60k?  That's impressive in any market I'd think.  You're talking about a new SFH?  Wow.

Not sure on how it compares for San Antonio but 8% cash on cash does not get me excited.

Drew Macomber · Answer

@Roger Covin It sounds like in 6 months you'll take cash off the table and we'll be a lot higher than 8%.

If you can own a house for $75k that cashflows $1,000 a month... that's pretty good! Not only is that potentially better than 8% COC, but even if it were 8%, it seems silly to compare it to an index fund. An index fund does allow you to deduct appreciation, it doesn't account for appreciation (SATX is one of the fastest growing cities, and highly ranked among developers), and again, that doesn't account for your cash out.

Seems like area will be later to gentrify than others, but I personally think it will certainly appreciate faster than most zip codes in SAT (as you can't buy much lower than $10k a lot).

Sounds like a great investment to me, and everyone is getting hung up on the 8% COC. And btw, you can like refinance after 6 months.

Betty Cruz · Answer

@Roger Covin I get about 20 percent return on investment. But of course my builder finance. Obviously, if you keep your cash in, your annual return on investment will not be nearly as hot.

Roger Covin · Answer

Thanks for the responses!

@Lluis Bacardi I have a good contact for contractors and wholesale materials. I'm currently completing a new build that people said would cost $40-$50k and they're getting it done for $20k....it's our first project together so I still have to see how it all ends.  There are utilities but didn't account for pulling permits for new builds...

@Ernesto Hernandez my plan would be to get 8% for all cash and then refinance and cash out in a year to still cash flow and make a little something in the process.  So essentially I'll get a few thousand dollars back to cash flow about $250 a month.

@Betty Cruz That's exactly what I've been trying to deteremine! How much it would be to build a small multifamily, I'm currently waiting for some feedback...

I guess I was trying to determine what kind of returns were buy and hold investors getting in San Antonio currently...

Betty Cruz · Answer

@Roger Covin I agree with the other replies. If you are already committed to the land and doing this, could you build a duplex or triplex instead? In my opinion Prospect Hill won’t attract high enough rents to get a decent return.

Roger Covin · Answer

I CAN'T EDIT THE TYPO!!! Lol

Analazying Rental Property: 8% Cash on Cash ROI Good???

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