Cash On Cash Return Question

6 Replies

My first property I am looking into after reading the Rental Property Investing Book. I don't have a huge budget. I am looking at a house in Pennsylvania. The price I would be getting it for is $115k. I am putting 20% down and would get a mortgage rate under 3.5%. After taking into account mortgage, closing costs, minor repairs, taxes, hoa fees, cap expenses, vacancy rate, misc fees my cash on cash is almost 20%. That seems very high and almost to good to be true but I think I covered all the basis. Any advice? Is it not as good as I'm thinking?

The big one you are missing is a management fee and leasing commissions.  Of course, if you plan on self managing, that is not an expense line item, but when you are comparing to other potential investments, i.e. syndication deals or even stock market plays, you are not doing the work, so for a true apples to apples, you need to account for this in your returns.

Thank you both for the reply. I plan of self managing. Its recently renovated doesn't need much now. Didn't know how much numbers to put. 

Price $115k.

20% down: $23,000

Mortgage: 3.5% (Think I'll get lower) $413

Closing Costs: $1500

Repairs: $500 

Rent: $1400

HOA: $100

Taxes: $205

Insurance: $85

Cap Expense: $90

Vacancy 5%: $70

Gives me about 20% cap

I would include 10% for management even if you're managing yourself.

That would give you an NOI (roughly) of $297x12= $3,564 and Cash on cash of about 14%. Still very good. Are you sure repairs are only $500? If so, it looks like a good opportunity.

Your denominator is $25,000 (down payment, closing costs and repairs upon acquisition)

You numerator is rent less the remaining expenses ($1,400 - $963) = $437 x 12 = $5,244 

I would adjust vacancy and capex to about $250 (from $160) so $347 x 12 = $4,164.

Is this a SFR? Is the rent amount actual or projected? if the latter, projected by whom? How does it compare to nearby rents?

Lucheo...yes I am sure. I am in the plumbing industry and all looks good. Roof was just done 3 months ago. Paint is clean. All plumbing if needed, I have a colleague up there. Heat is electric baseboard. Place is really move in ready.

Darius Thank you: rent is based on the agent and other sources I've verified. Possibly get $1450.