High-yield, “low-risk” M/F submarkets with double-digit cash-on-cash %

[Lambros Politis]

I'm looking to liquidate my modest real estate portfolio in the PNW via a 1031 exchange and move into a high-yield tertiary market. I'm targeting a double-digit cash-on-cash return in year one. Even with these significantly elevated interest rates, are there markets where sufficient cap rates remain on multifamily to achieve that target? I don’t really care about appreciation, I mainly focused on significant cash flow with minimal tenant headaches.

[Stuart Udis]

@Lambros Politis Using your $1M property example with a 30% expense ratio (which is lean in most instances), the monthly cash flow would have to be $15,000 in order to achieve a 10% cash on cash return. You are likely traveling to some pretty rough neighborhoods in pursuit of that type of cash flow and envision your operating expenses being higher than 30%...maybe not in year 1 but if viewed through a multi-year period most likely. Low risk and these types of neighborhoods don't mesh. 

If your goal is to generate 10% returns I would recommend looking into lending. You can put first position liens on much better quality real estate than the real estate you would be buying and can easily generate the rate of return you are seeking between points and interest payments.