Updated over 6 years ago on . Most recent reply
Help me understand. 100k scenario.
Condo: 100k. With a 20% downpayment of 20k. Ill have a loan for 80k. Closing cost of $3000
Cash invested: $23,000
Rent: $1500/mo or $18,000 year
Mortgage $500/mo. Or $6000/year.
Vacancy rate at 5%. $900/year.
HOA fees are 300/month. $3600/year
Property taxes are 1500/year. Insurance of 100/month. $1200/year.
Repairs of $150/month. $2000/year.
Capital expenditures: $100/month $1200/yr
Property management: 6% or $90/mo or $1080/yr.
CAP rate: $18,000-$900 (Vacancy rate)-$3600 (hoa fees)-1500 (property tax)-$1200 (Insurance)-$2000 (Repairs)-$1200 (capex)-$1080= $6520. Or
$6520÷100,000= 6.5% cap rate.
Return on Investment
Rent: 1500
Mortgage: 500
vacancy: $75
Hoa: $300
Property tax: $125
Insurance: $100
Repairs: $150
Capex: $100
Property management: $90
Cash flow: $60/mo
$60 x 12=$720 cash flow per year.
Cash on cash= $720/$23000 or 3.1%. Or just keeping up with inflation. Does this look right?
Most Popular Reply
#5 All Forums Contributor
- Plymouth, MI
$720/year cash flow is terrible...regardless of any CoCR calculation. You're trying to analyze a RE property using all kinds of percentages and theory. Just look at the numbers ($$$$) right in front of you to answer your based question.
Your hard monthly expenses are at $1015/month. When you have a vacancy, you don't lose just the income (cash flow), you lose out of pocket all the hard expenses that were covered by the rent BEFORE you got your cash flow.
This means, if you are only getting $720/year in cash flow, and if you add all the "feel good" (but accomplish nothing) risk controls back into the CF, you are really at $1060/month. What that really means is if you have just one month vacancy, you are only $45 to the good.
Now, you have repairs, etc...that you have to cover on top of that. Where does that money come from? You guessed it...your pocket, and you are now substantially in the red...as in losing "your" money.
Calculating a return on your investment using "%'s", and "feel good" risk controls, is an illusion...and this property is a terrible investment.