All Forum Posts by: Carlo D.

@Carlo D.

I want 6-10% CoC if I leverage because I know my internal return is WAY more than 6% or whatever I'm making off my down payment. Appreciation and principal pay down are huge over time. Plus I know I can raise rent which will help immensely since my mortgage is fixed for 15-30 years. So I can be patient with my low CoC returns the first couple years.

However, I'm paying cash for some cheaper homes next week I'm unable to get loans on because they're under 100k. So, I need much higher CoC returns because my $ and equity will be tied up in these properties for a long time. I can't tap the equity with cash out refis etc. So I'm getting around 20% CoC with these cheaper properties.

@Carlo D. it's not necessarily true that most RE investors look for a CoC of 7-10%. As with most things in REI, it all depends on a myriad of other factors--things like the grade of the property, the grade of the neighborhood, the investment strategy, the investor's net worth and experience level, the investor's goals, the difficulty or ease of managing the property, vacancy projections, etc., etc., etc. ...depending on these types of factors, a 7-10% COC might be a grand slam success, or a train wreck.

A 7-10% COC (after PM fees and all other expenses) on an A grade truly turn-key property in an appreciating area with a huge tenant pool might be enticing (and probably doesn't exist in today's market). But, 7-10% for a C grade property that no PM wants to manage because it's a magnet for crime, non-paying tenants, vacancy, evictions, and repairs? No thanks--wouldn't touch that with a ten foot pole.

A property can look GREAT on a spreadsheet (with a high COC, high cashflow, etc.), and it can still be a complete nightmare that can ruin your life (indeed, we see no shortage of beginners in the forums who talk about buying a property that looked GREAT on the spreadsheet, but which turned into a total disaster). ...and the opposite is also true--some properties look mediocre on a spreadsheet, but can be excellent investments for any number of reasons (e.g.; tax benefits, construction quality, tenant pool, value-add opportunities, ease of management, etc., etc.). This is what makes REI interesting, in my opinion--it requires the investor to understand so much more than just the numbers on the spreadsheet.

But, to answer your question: yes, I would run the numbers for COC when purchasing a property in cash. I would also run a LOT more numbers, and do a thorough cost / benefit analysis looking at numerous factors like what I described above. COC is just one of many factors to consider when investing in real estate, and simply hitting a specific COC number isn't necessarily the ultimate deciding factor in whether to buy a property.

Good luck out there!

Depends on a few things, like will the monthly increase be worth the costs of the furniture?

Another thing to factor in: financing. If you ever plan to refinance with a DSCR lender, they typically go off the market rent in the area of unfurnished properties. So lets say the property rents for $2k unfurnished, but $2,500 furnished, the lender will view it as $2k, which, for a DSCR lender, can reduce your LTV.

If buying all cash, I look at the payback instead of CoC return. Depending on the market, I want a 7yr payback at the most.

Most investors that I know of that are concerned about CoC return never do cash transactions. They do a hard money loan at best or they buy the property Subject to the existing mortgage. So if there is a specific reason why you purchase cash like you don't believe in carrying debt I guess it could make sense. But typically if you run the numbers it would be better to go out and buy 5 properties with that money and hard money loans rather than tie all your money up in one deal. Typically CoC return would be better in this case.

I guess it could also depend on your exit strategy. I wrote my reply assuming LTR but maybe your exit strategy could justify the full cash transaction.

@Carlo D. I wouldn’t do longer leases. Some of my tenants ask for a lease renewal every year and others go month to month. I’m just as happy with the month to month because if there is a problem it’s easier to not renew and get rid of them.

I don’t always increase my rents every year but sometimes I will do a small increase if the market or the current rent warrants it.

@Carlo D.  Its a difficult call in your situation talk to a relator or someone who knows the area.  I would consider how difficult it is to get furniture in the building and unit and if there are any unique aspects to the place that make furniture difficult to fit. What do other studios in the area advertise? Even with LTR if you expect issues with furniture size, elevator scheduling, or everyone else does furnished consider furnishing. (note that NYC I believe even has a room tax for less than 90 days) so your LTR strategy avoids that. Not a fan of multiyear leases, they lock you in but the tenant will leave when they want. if you do them build in rent increases. Good luck.

Before you do anything, research the regulations in New York City. My understanding is that they either have banned or are going to ban short term rentals. Given the highly regulatory environment there, I'd want to research it no matter what I planned to do with it, be that long term, midterm or short term.

Pros: No tenant turnover (vacancy, turn/maintenance costs), avoid potential rental decreases.

Cons: No rent increases (while expenses could still increase).

I can't comment on the demand in the New York market, so take this with a grain of salt, but ideally there isn't a reason to go longer than 13-14 months; if you freeze the rents for 2-3 years, your insurance, taxes, utilities, etc. are almost certainly going to go up but your income won't. You could offer a 2-3 year lease with built in increases (like 3-5%)-- the tenant has price certainty and you hedge your risk.

If you have good rental demand and keep your tenants from trashing the place, it makes sense to do a 12 month lease, increase the rents (if the market accepts it), and replace the tenant if they don't want to renew.