what's your cash-on-cash return - Posted by chris

Posted by PeteH(NYS) on December 12, 2008 at 24:29:30:

10 summer cottages surrounding a 2BR main house in Lake George, NY. We’ll do weekly rentals between May and October, from which I think we can reasonably net $84K. Putting $100K down, of which I get to use $35K to update cottages (adding sleeping lofts to 2BR units, fancying things up). Owner will finance the rest at 6.5%, 20yrs, pmt $3510; at 3 yrs either a balloon or, my option, another 5 yrs of seller’s money at 7.9% if I pay balance down another $25K. (That gives me breathing room if money is not as cheap or available in 2012.)

Annualize the $84K to $7K/mo, pay the seller $3510/mo, there’s a little over $40K spendable coming off our $100K down. Plus we get to take our 5-month-old to our place by the lake for three months a year.

what’s your cash-on-cash return - Posted by chris

Posted by chris on October 21, 2008 at 11:05:36:

Hello everyone, i just wanted to ask some of you experienced CRE investors a question.

  1. what kinda cash-on-cash returns do you look for?
  2. are you finding it hard to find deals with your cash-on-cash requirements?
  3. is there ever a time when you’ll go through with a deal, even when you can’t get the cash-on-cash returns you want? if so,please explain

the reason for my questions is because i’m finding it almost impossible finding deals offering the kinda cash-on-cash returns i’m seeking (20%).

So i just wanted to know is this something i’m doing correctly and i just have to keep searching for that right deal, or is this percentage completely out line (to high) and i need to come down a little to reasonably figure.

Re: what’s your cash-on-cash return - Posted by Steve

Posted by Steve on October 28, 2008 at 10:10:55:

Well as someone already stated, finding a 20% cash on cash return is a
very tall order and basically I would say that if a deal like that comes
along, someone else is probably going to snatch it up way before you
ever hear about it.

Myself I am looking for apartment buildings in the 10-15% cash on
cash range, which are plenty out there. Anything over 10% cash on
cash is a decent deal in my book. Under 10% then it must be a very
low risk and low hassle property. Even 15% is not easy to find. You
have to do a lot of networking. Look for cap rates that are 2-3% over
the current loan interest rates.

Some people may do lower cash on cash if the property is a rehab and
can create a lot of profit on the backend when you sell or refi it after
going into the hole for a year or two, spending money on rehabbing,
etc. But those are for people with deep pockets to pursue. For people
just starting out, which it sounds like you are, I highly reccomend you
find a realistic cash flow and establish that first, then later on you can
take on projects that don’t cash flow well but will return big on the
back end somehow if you want.

In some market with low cap rates, the reason the cap rates are low is
because there is a lot of appreciation happening in that market and
people are making enough money when they sell or refi their property
to justify the low-to-no cash flow. But personally I consider that
speculative investing and especially if you don’t have deep pockets, its
a dangerous game to get in.

Re: what’s your cash-on-cash return - Posted by john

Posted by john on October 23, 2008 at 21:01:01:

I’ve never seen a deal that’s 20% cash on cash return although I’m sure they exist. It depends on what types of properties you are interested in buying. I’m sure you could find a foreclosure of a property that might meet this requirement or a desperate seller. I look for 6-8% with no risk and no management (AAA rated and NNN leases) Others might look at 10-15% high risk…example apartment complex in the middle of nowhere usa with lots of management headaches and costs. Why do you think you can get 20% or is that a random number you came up with. Do your research, set a reasonable goal and then stick to it. If 20% deals were common then everyone would be doing it…including wall street. Your looking for that needle in the haystack.

Re: what’s your cash-on-cash return - Posted by Bill Jacobsen

Posted by Bill Jacobsen on October 22, 2008 at 10:15:47:

I never calculate the cash-on-cash return unless it is important to someone whom I am trying to convince to buy. It will be different for every buyer.

I am more interested in the cap. rate compared to the loan interest rate and the overall revenue compared to purchase price. Besides those numbers are easier to calculate than the cash-on cash return.


Re: what’s your cash-on-cash return - Posted by Sharon

Posted by Sharon on October 21, 2008 at 14:08:41:

Depends on your market and investment vehicle. If you’re buying single family homes in Dallas, your c-o-c return may be lower than in say Arizona, where property tax rates are much lower. Homes vs. apartments give different results, and so on. There’s a few different ways to improve your c-o-c return:

  1. Raise rents or create new sources of income (i.e. coin washer/dryer)
  2. Lower Expenses
  3. Put more money down
  4. Switch markets
  5. Switch investment type (homes, apartments, land, etc)
  6. Pay less for the property

Or, you may be totally unrealistic, but I just found a deal offering 19-29%; unfortunately, I didn’t have the money to buy it - but they’re out there. Good luck!

Re: what’s your cash-on-cash return - Posted by chris

Posted by chris on October 28, 2008 at 15:21:17:

first i wanted to say thanks to all the people who shared their knowledge with me on this topic.

second i wanted to say to you steve and jon thanks for breaking this whole cash-on-cash return thing down to its simplest form and making it very understandable.

the reason i was using a 20% CoC return to analyze my deals off of was because someone else told me to do this, but i just knew something was off when after analyzing multiple properties my max offering price was nowhere even near the sellers asking price