What's your criteria for Cash Flow or cash-on-cash ROI?

Question

I'd like to get a survey going.

When evaluating houses, what's your criteria for:

1) Cash flow per door (e.g. $100)

2) Cash-on-cash return on investment (e.g. 12%)

3) Do you only use one metric or both? Does a house have to satisfy at least one of those criteria or both for you to buy it?

Alexander A. · Answer

My minimum COC is 15% but I was able to get 20% on the 3 turnkey rentals I have purchased in the last year.

Im also getting cash flow ranging from $240 to $340 on them.   In the future I would like to stick with those numbers.

I think its all relevant to location though.  Each market will differ.

Ethan Nicodemus · Answer

Hey BP! I want to learn more about underwriting annual expenses on small and large multifamily properties. I had a question regarding Annual Operating expenses (Operating expenses include: Taxes (property taxes), Insurance, Management, Maintenance, Utilities, and Repair.) A local bank I have a relationship with underwrites annual operating expenses for small Multifamily 2-4 unit non owner occupied at 30% of net rents, for example:

Gross Rents = $48,000

Subtract 10% Vacancy from Gross Rents = -$4,800

Net Rents = $43,200

Subtract 30% OpEx from Net Rents = -$12,960

NOI = $30,240

• What percentage do you factor when underwriting OpEx for small and large multifamily in your market?

Account Closed · Answer

here's is our basic criterias that we strive for.  With all the markets heating up it's getting more difficult to achieve some of these but we still use it as a guideline to help us evaluate pros and cons of properties.

1)Cap rate above 10%.

2) no rents less than $700.

3) 3br only. And No multifamily.

4) rent ratio above 1.3%

5) ultimate goal is to net $200 minimum off each property/month regardless of purchase price and rents.

6) we try for good schools but it's hard in the c class properties.

7) we also consider the crime rates in the area.

8) we prefer already rented if through a turnkey company.

9) we try not to buy more than 1 home in the same area. We like to diversify within the city to minimize our risk.

10) if we can we would prefer homes built post 1940. But with the c class high cash flowing properties this gets hard as well.

11) no flood zones.  Increasing insurance premiums and will get flooded eventually.

12) greater than 1200 sq ft

13) if off MLS prefer vacant to screen our own tenants with our high standards.

* this is just a guildeline .  I am open to criticism.  Just don't be rude about it. Please! :)

Joel Owens · Answer

Most of my clients are looking for 15% coc off of a 25% down payment for commercial properties.

Passive investors buying into syndicates they tell me 10% ROI annually.

Commercial is a different product where you are generally working less for yields than SFR type properties.

Returns demanded change over time. As investors get older they tend to want more security and will accept less return for it.

For example if someone is worth 15 million and 10 million gets 15% coc that is 1,500,000 annually pre-tax. Most people's lifestyles do not come anywhere close to using that money on an annual basis.

I find younger want very high yields to try to grow money from 100k, 300k, 800, 1 million and up and then ramp down after they have made it. I am sure there are exceptions but generally what I see.

I personally am fine with getting 15% coc annually. I will trade some percentage such as getting 20% etc. for not having a headache or working like crazy.

Brian G. · Answer

Interesting. Different cash flow outcomes depending on who's being asked or their location.

Question: Talking reserves for a moment. For main repairs and CAPEX. Say you want to compare triplex units. All similar construction with comparable concrete walls and shingle roofs. All are equivalent in size. All are located in B class inland areas. All units are as originally built and nothing has been replaced or improved (including HVAC). The only thing that varies is the year built. What reserve % would you estimate for repairs and CAPEX on the structures considering the following year built ranges:

From 1960 to 1970?

From 1970 to 1980?

From 1980 to 1990?

Jamie Bush · Answer

@Curt Davis

No, I calculate my cash on cash return from the NOI. I am a very conservative investor and I realize some people might think this is crazy in the low interest environment we are in but I try to stick to this principle to not get wiped out when rates rise or bubbles come back to reality.

Curt Davis · Answer

@Jamie Bush

I am assuming thats 20% gross ROI correct?

Marco Santarelli · Answer

@Jeff L. -- Good job my friend; you beat me to the punch on this question.  I was going to post a similar question next week!  :-)

Anyway:

1)  Cash flow per door:  $150+ per door.

2)  Cash-on-cash return:  15% COC min.

3)  Do you only use one metric or both?  I use a large number of metrics.

Continued success!

Joe Villeneuve · Answer

Consistently.  I don't buy without $300/min.  I just closed on a duplex that will net over $500 on the property.  I do an almost immediate Cash out refi (hybrid) where the cash out part is my CAPEX, etc...

Jamie Bush · Answer

In my opinion, cash flow per door can fluctuate greatly by market and can be a bad indicator. I won't touch a deal with less than 20% cash on cash return.

What's your criteria for Cash Flow or cash-on-cash ROI?

Most Popular Reply