[Calc Review] Brand new & wondering about Cash on Cash ROI

[Ryan McGhie]

Thanks in advance to everyone taking a look at this! I've been reading and studying and trying to learn as much as I can about real estate investing and I should have my cash out refinancing done later this month. I've been looking in the Spokane area for my first rental property and was hoping to BRRRR it.

One thing I've been having trouble with is the Cash on Cash ROI. I keep hearing that 8-15% is the range you want to shoot for, with 8% being the low end and 15% being a dynamite deal. Most of the properties I have been running through the BRRRR Calculator usually gives me a 2-4% Cash on Cash ROI, which I know is a lot lower than most people shoot for.

Is it better to just go for it even if the ROI isn't great in order to get the momentum going and get a property under my belt, or is it better to make sure I find a strong investment from the beginning?

View report

*This link comes directly from our calculators, based on information input by the member who posted.

[David Clinton III]

Hi @Ryan McGhie, welcome to BP!

It's easy to get lost among all the metrics people use to define success in REI. Cash on Cash Return, Cap Rates, "$100/door", IRR, and others. There is no wrong answer with which of these metrics to use, but it's important to understand what your goal is, and tailor your definition of success around that. If 8-15% cash on cash is a range some people are looking for, that's great. I recommend asking them why that's their goal, and what they define as successful, etc.

Once you dig deep into Cash on Cash as a metric, you'll learn that different levers will cause that bottom line number to change. Different financing can have a big effect on how cash on cash looks different for two different investors looking at the same deal. If you're investing 100% cash, COC will always look terrible. If you're financing 100% of the deal, your COC will be literally infinite, because you have no money in the deal. And there is every possibility in between. Be sure you are comparing apples to apples when others are quoting you a specific cash return number.

I hope this is helpful, and I'm glad to get on the phone and chat in more depth. Let me know.