What Is Your Ideal Duplex Cash On Cash Return?

One of the questions I ask Minneapolis duplex investors most often is “What kind of cash on cash return would you like when you buy a duplex?”

The question is different than my asking how much positive cash flow someone wants. What I want to know is, what kind of cash do you want out of your investment property compared to the amount you put down?

For example, if you buy a duplex for $100,000, you may have been required to put 25%, or $25,000 down. (Remember, if you’re an owner occupant, FHA loans allow you to put just 3.5% down.)

If you left that down payment money in a savings account at the bank, you might have gotten a cash on cash return, in the form of interest payments, of 1-2% on your money, or $250-$500 a year.

On the other hand, if the duplex had a positive cash flow after expenses and debt service, of $2500/year,  you would divide that figure by the amount of your down payment to determine your cash on cash return. $2500/$25,000 = 10%..

It’s a good idea to have a rough idea of your ideal rate of cash on cash return may be as you begin your hunt for a Minneapolis or St Paul duplexes to invest in.

This will help you compare a property in one neighborhood to another. In the process, you may discover you’re willing to trade a higher rate of return for a property in a more sought-after neighborhood.

I’m a little biased, but I have to add, it will also help your Realtor find you the ideal investment duplex!