Cash on cash ROI vs Monthly cash flow

[Tarcizio Goncalves]

Happy New Year BP community,

I started to analyze rental properties with the rental property calculator on BP. One house in particular that I am currently analyzing, after playing with the numbers a bit, I got my monthly cash flow to approximately where I want to be. The cash on cash ROI on the other hand, its less than 4%. I know Brendan mentions in his videos that he wants to be somewhere between 12%-15% ROI. I am planning on holding on to my rental properties for a long time. Since this is the case, do I really have to worry about the ROI? Can I just focus on the monthly cash flow? Any advice would be extremely helpful.

Thank you

[Christopher Phillips]

@Tarcizio Goncalves

You have to look at both. Positive cash flow is just the start. After that, you want to see how your money is working for you.

Brendan's expectations for return won't be the same for someone living in a different part of the country like Boston. Every area and every investor has a different set of expectations. Starting out, 2% or greater is fine. When you have a larger portfolio, you expect more for your money.

2% is just an average benchmark. If your assumptions are good for expenses, financing, rental income, then you have a property worth exploring.

But even 2% is cutting it close. If you end up having to pay for a new roof or new HVAC after only owning for 1 year, that's not long enough time to have cash put to the side.

But like I mentioned, every area is different. In some areas, it's hard to even find a rental that will have positive cash flow due to prices rising faster than rental income. So, you have to have solid analysis to keep yourself out of trouble.