First Commercial Property - Thoughts Appreciated

[Nitya Gospel Jetson]

Looking at a co-invest opportunity with a friend on a University Student rental property. Its priced at $480k, the portfolio lender has offered a 5% rate for a 20-year loan with the rate being revised every 5 years (need to confirm cap). The property is a 7 unit space - currently rented for $5710 a month. 

Assume we do 25% down, below are the numbers. Is this too low of a cash flow to be making this effort for? Any guidance appreciated

	Monthly
Income:	$5,710.00
Mortgage Pay:	$2,375.84
Vacancy (8%):	$456.80
Management Fee (10%):	$525.32
Property Tax:	$1,333.33
Total Insurance:	$250.00
Maintenance Cost:	$166.67
Other Cost:	$16.67
Cash Flow:	$585.37
Net Operating Income (NOI):	$2,961.21

Downpayment - 25% ($135,000) roughly will all cost, Mortgage the rest.

For the 20 years invested

     

Return (IRR):	15.76% per year
Total Profit when Sold:	$1,059,203.90
Cash on Cash Return:	861.14%
Capitalization Rate:	7.40%
Total Rental Income:	$1,524,478.87
Total Mortgage Payments:	$570,201.76
Total Expenses:	$569,651.94
Total Net Operating Income:	$954,826.93

[Greg Scott]

Nitya:

Based on the numbers you provide, it looks like your short-term cash on cash return is 5.2% ($585*12/135,000) which isn't bad.  However, I think your maintenance expense has zero chance of being correct.  Given the transitory nature of students, you are going to be turning units regularly.  I'd estimate your maintenance costs should be at least 3x-4x what you have written down. If correct that would eliminate your cash flow.  With zero cash flow, your projected returns are completely from the assumed appreciation.