ROI or cashflow....or both?

[Dan Miles]

Hi BPers! I'm just trying to figure out what is better to shoot for. Cashflow or ROI. I can't seem to find anything that gets better than 10% ROI. This is cash on cash. I do have to finance. I hear a bunch of people saying they won't purchase unless they get 15%. Should I be shooting for higher or is 10% ok? Or should I just be happy if I feel the cashflow is worth it?

[Andrew Johnson]

@Dan Miles For me it's more around risk-adjusted returns. If you're going to go into a market you don't know, warzone, far away, etc. then the potential return has to be higher. In most cases (isn't generalizing fun?) the higher the ROI the less desirable the property/area/etc. Everyone wants to buy in San Francisco, you compete with homeowners and investors, and ROI (taking appreciation out of it) is extremely low. The same can be said for most areas of Los Angeles, San Diego, Denver, etc. Now go to a dicey area of Ohio where almost all properties are owned by investors. It's not as desirable, appreciation isn't much in play, you don't have to compete with homeowners, etc. Prices are lower, cash-on-cash or ROI returns get better. What you have to figure out is what your strategy is. There isn't a right vs. wrong here. Most of it is based on your philosophy, ideas on where the market is going, etc.

Some people love the returns of a Class D area, some people avoid it like the plague.  I'd hazard to guess there are people that will buy in places like San Francisco, be content with a "break even" cash-flow proposition, and believe they will make their money on mortgage pay down (building equity) and appreciation.  What they believe and I believe aren't going to be relevant to you.  You have to develop your own thesis (or adopt someone else's) so that you can map potential properties against it.  Otherwise you'll be wandering around in the dark.  My two cents anyway...