ROI Goal: Multi-Family vs Single Family ROI Rates

[Eric Baumgarten]

I'm running the numbers on a properties, looking for my next buy and hold rental. I've found that there's a bunch of small multi family houses available - often 2-4 units per house. I've been told that shooting for at least 12% Cash on Cash ROI is good for single family rentals. While it's more difficult to find that kind of rate on a single family property, I do find it a lot easier to find that rate on multi-family properties.

Do investors tend to set higher cash on cash ROIs for small multi family units? If so, what's the reason? 

What cash on cash goals make a good baseline for multifamily properties?

[Ryan Daigle]

Hey @Eric Baumgarten,

What returns you should aim for should really only be based on you and your investors' goals. If you are happy with a 6% CoC return, then that's an advantage for you.

To your question about why there would be a difference in expected returns for different RE asset classes - returns are commensurate with risk. So an asset with a higher risk profile should receive a higher potential return.

Given that multifamily is less risky than SFH (the scale of MFH evens out returns) you would expect SFH homes to require a higher ROI.

Is that what you're seeing, or are you saying the opposite?