Cap rate, pro forma cap rate, cash on cash ROI?

[Aaron McCarty]

Though I’m not new to investing, I am new to formally analyzing deals. And...I don’t know what to look at anymore. When I run analyses, I don’t understand which figure to focus on to see if the investment is a good deal or not. Do I look at cap rate, pro forma cap rate, cash on cash ROI, or does it depend on what type of deal it is (i.e.: rental, flip, BRRR)? Or, in what scenarios/instances do each of these matter more or less? I’ve Googled what each means and I understand, but can’t seem to apply these concepts to my analyses. Thanks in advance!

[Mitch Brunette]

I think these are great questions and I wrestled with it for a while until I just finally got over it by realizing what I wanted.

1. A cash on cash return rate higher than that of index funds which I could get and be 100% passive.

2. Cash flow that got me excited, relative to the rate of coc return.

For example l: coc return of 12-15%, the cash flow needs to be a few hundred bucks vs a coc of $100-150 door, that coc return better be 15%+ to make it it worth only getting $150 or less.

The only other piece that I’m weighing as I hunt for my next deal are exit strategies. If I can’t get out of it easily, it needs to cash flow more and get the higher end of coc return on the ranges mentioned above.

Investing is personal. Read/consume, but eventually you have to make a decision and stick to it. Be open minded but be very convinced if strategy is going to change.