All Topics / Heads Up! / Cash on Cash Return

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  • Profile photo of Joanne2Joanne2
    Join Date: 2003
    Post Count: 1

    G’Day Steve!

    We’re halfway through your book and may have jumped the gun a little. We got all excited and went looking for positive cashflow property in a country town we think has potential approximately 3 hours from where we live.

    We offered $195,000 for a commercial property that has a gross rental return of $20,000. We were pretty chuffed with ourselves until we read further and discovered that your benchmark for cash on cash returns for commercial property is 20%!! My calculation of the CoCR for this property is 14% (still, it’s hard not to be stoked that we actually found a deal! – two in fact – but this is the better of the two).

    Reading even further your comments regarding risk seemed particularly pertinant as the tenants, while in the building for years, are currently on a four monthly lease.

    I was going to ask whether or not you thought that the deal had merit, but I think I’ve answered my own question in that perhaps the risk is a little too high for the CoCR (unless we can mitigate it by negotiating a more secure lease or higher rent?).

    If you don’t mind me asking, what is your average CoCR for commercial property? That is, what should we be aiming for over and above your CoCR of 20%

    Regards J.

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