The Threshold of a "Good Deal"?

Question

Hi, folks. I'm brand new to the Bigger Pockets community and the real estate investing game. I am unbelievably excited that I stumbled across this educational site, and would appreciate any insight to my question. I live in Northern Michigan and I am analyzing properties using the rental property calculator. For context, I have approximately $18k in cash to put toward my first property purchase and I'm looking at houses that are currently listed between $30k-$80K. I've analyzed 3 similar properties and the respective annual Cash Flow / CoC ROI numbers are as follows:

Property 1 - Cash Flow: $3,808    CoC ROI 20%

Property 2 - Cash Flow: $3,890    CoC ROI 30%

Property 3 - Cash Flow: $3,126    CoC ROI 18%

I guess my question is, what numbers threshold should I be looking at when deciding what to bid on? I know there are numerous factors, but I'm trying to avoid "analysis paralysis" by overwhelming myself with all of the angles. These three properties should have no problem retaining tenants, but I'm wondering what numbers I should be focusing on when deciding to take a closer look at making an offer.

Any examples or insight is greatly appreciated!

Evan Polaski · Answer

@John Arnold hi John, welcome to what will hopefully be a fun and fruitful venture.

All else being equal, why would you not choose the one with the highest return?  If you are looking for a specific number that would yield a go/no go decision, that is something only you can answer.  For me, I want 8-9% cash on cash passive.  When I first started investing in single families, I was following the 3% rule (I miss the great recession).  But have a bought properties that were less than 3%, yes, however they were in much stronger neighborhoods and still cash flowed really well.

Ultimately you are assessing risk:reward ration.  If property 2 is offering the highest return (reward) and has the lowest risk, it is a clear winner.  But in reality your lowest returns will likely have the lowest risk.  So it all boils down to where you are comfortable.

Cash flow is also typically only half the equation.  While you cannot guarantee any appreciation, it is also where most investors make the most money.  Rehabs are a great way to force appreciation for smaller properties that trade more on comparable sales than financials.  And rehabs that create rent increases can help force appreciation on larger scale multifamilies, where the financials are the driving force of value.

Kenneth Mooney · Answer

I agree with @Evan Polaski above. Only thing I would say to check on is that their are cities across the nation that are actually depreciating in value due to job loss/shrinkage in said city. Just be careful that you do not invest into a city like that. They can be tempting due to phenomenal cash flow.

I think ideally you invest in a place where their is solid job growth and also low entry points/good cash flow.

John Arnold · Answer

Thank you, @Evan Polaski for the prompt replay. I guess I am just hesitating because of the "only you will know" decision. :) Like has been mentioned numerous times in forums, articles, and books, at some point, I just have to take the leap.

Thank you, @Kenneth Mooney for the input. I appreciate the willingness for people to share their knowledge here on BP.