Would you make this deal or not?

Question

Hi Landlords, Property Owners & Smart People,

Currently, my properties are turning great returns and are providing me with wealth (not substantial but pretty kick ass).  I am looking at a deal for a long term hold and in it to win it, but strangely confused - looking for your assistance.

Here is the deal - not sure if it is complex but I will do my best to explain:

Property A

Purchased at 305k, renovated, rented and retaining: Single family renting at $5000 a month - great cash flow - equity in home is substantial - value of home is over 700k; currently have 1 mortgage on home and owe $220k; have equity line of credit of $150k and have not touched it; Net Annual Return is 44% roughly (probably won't come across anything like this again)

Property B

Purchased at 450k, renovated rented and retaining: single family renting at $4000 a month - decent cash flow - equity in home has increased due to reno - value now worth near $550k conservatively and have 1 mortgage on home; not really interested in doing to much more with this property at the moment; Net Annual Return is around 10% (put a substantial down payment down to increase cash flow)

Property C - Looking at dealing - Buy? or not?

Asking 650k, needs upgrading - kitchen, flooring e.g..; renting at $4425; knowing what the market is at 30 year 5.6% for investment properties or even a 15/1 arm 5.5%; do the numbers work out? depends on how you buy? or again look at long term hold? IF (and thats a big if) I can get in at near 600k; how can you finance this to make it work? does it make sense to use the Line Of Credit from Property A for down payment?

How I see the numbers - and looking for feedback here

$2500 for mortgage

$700 for interest line of credit (is based off prime and adjustable monthly)

900 for taxes (name of the game for playing in this city)

$150 for ins

To close to deal, to risky? All thoughts welcomed.

Thanks!

Jaysen Medhurst · Answer

@Mike Schmidt, I don't see how C is a winner. You're not including Repairs / CapEx (combined 15% of rent), vacancy (10%), or management (10%). Include those and you're cash negative on a $150k investment. Maybe this is a longer-term appreciation play, but that's speculation, not investment.

Also, I'd take a hard look at B. Most RE investors would not be happy with a 10% annual return. Makes me think you're not putting your equity to good use here. Remember, a large DP doesn't increase your cash flow, it buys your cash flow.

Property A sounds like a winner. You said you are seeing an ROI of 44%, but what's your Return on Equity (ROE)? You're sitting on nearly half a million bucks. You could turn that into a nearly $2MM multi-family property and realize $5k in cashflow/month (assumes an 8 Cap, $1.5MM note at 5.5% for 30 yr). Plus you'd be seeing way more in appreciation, depreciation, mortgage pay down.