308: Rookie Reply: Don’t Chase Cash Flow! Use THIS Metric to Analyze Your Deals

Real Estate Rookie

BiggerPockets

How To, Education, Business, Investing, Entrepreneurship

4.8 • 1.7K Ratings

🗓️ 29 July 2023

⏱️ 47 minutes

🔗️ Recording | iTunes | RSS

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Summary

How important is cash flow when analyzing real estate deals? Many rookies zero in on this familiar figure when crunching the numbers, but there’s another metric that is FAR more important: cash-on-cash return. This simple but powerful equation can help you determine whether an investment property is worth buying! Welcome to another Rookie Reply! Many rookies struggle to analyze deals when starting out. Fortunately, Ashley and Tony are here to show you exactly how to calculate your cash-on-cash return on a property. They discuss when to use lines of credit to help fund deals, as well as how to pitch seller financing options that make sense for both sides. They also talk about the home appraisal process and, finally, whether an offer on a property can ever be TOO low! If you want Ashley and Tony to answer a real estate question, you can submit a question here, post in the Real Estate Rookie Facebook Group, or call us at the Rookie Request Line (1-888-5-ROOKIE). In This Episode We Cover Why you should use cash-on-cash return over cash flow when analyzing deals How low is TOO low when making an offer on a property When it makes sense to use a line of credit for a down payment The purpose of appraisals and when you might need to order one How to effectively pitch seller financing options so both sides walk away with a win And So Much More! Links from the Show Find an Agent Find a Lender Ashley's BiggerPockets Profile Ashley's Instagram Tony's BiggerPockets Profile Tony's Instagram Real Estate Rookie Facebook Group Join BiggerPockets for FREE Submit Your Real Estate Rookie Question! Use the BiggerPockets Investment Calculators to Analyze Your Deals Using Lines of Credit to Kickstart Your Investing Career Check the full show notes here: https://www.biggerpockets.com/blog/rookie-308 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email: [email protected] Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	This is Real State Rookie, episode 308.
0:04.1	And I just wanted to find really quickly cash on cash returns.
0:07.0	I was talking about this as a metric, but for those that aren't familiar with that metric,
0:10.7	cash on cash return is a fraction.
0:12.8	And the top of your fraction, you have profit for the year,
0:15.8	right? How much profit did you generate over a 12 month time frame?
0:19.0	And in the bottom, in your denominator, you have your cash invested to acquire that property.
0:23.4	So for us on the shorter mental side, that's your down payment closing cost.
0:26.3	And we typically try and roll like any startup costs into that as well.
0:29.8	But typically, your down payment, your closing costs.
0:31.7	And then that's top number is your profit.
0:33.2	My name is Ashley Care, and I'm here with my co-host, Tony Robinson.
0:37.0	And welcome to the Real State Rookie podcast, where every week,
0:40.3	twice a week, we're bringing you the inspiration, motivation, and stories you need to hear
0:44.0	to kickstart your investing journey. And today, we are back with a rookie reply episode.
0:49.0	And like, as always, I love getting into the nitty gritty of these most episodes on Wednesdays.
0:54.0	You guys see here from amazing guests.
0:55.7	On Saturdays, you get to hear me and Ashley Blab for, I don't know, 30 or 40 minutes about
0:59.3	all things real estate investing. But we talk about a wide range of topics today. We talk about
1:04.7	how to submit offers as a rookie. And when is too low? Like, when is an offer too low? And how do
1:10.8	you kind of navigate those situations, which is a very important conversation? We talk about
1:15.2	cash flow requirements. Like, how do I know what I should be looking for is a new investor in
	...

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