Analysis complete. Too good to be true?

[Keith Torsen]

Alright, big step forward for me as I've just completed my first property analysis using the Four Square worksheet.

Property is in Sacramento, CA. It's a triplex, and I would be house hacking it.

Assuming I also paid myself "rent", (so I'm looking at it as full occupancy with owner-occupied), I could get $1,000 per month per unit, grossing $3,000 per month for the triplex. It's also noted that only two units are currently rented, allowing me to move into the third almost immediately.

Mortgage is estimated at $2,097, at 5% interest, 3.5% down. All other expenses total $651.

My numbers are using 5% each for CapEx, vacancy, and repairs. If I factor in 10% as suggested usually, it has negative $500 cash flow. I didn't factor in prop management.

So that brings us to $3,000 in rent, and $2,748 for expenses. Cash flow would be $251. Closing costs at estimate of $8,000, and about $5,000 in rehab budget, total investment equals $24,375, with an $11,375 down payment

Divided by annual cash flow of $3,018, equals a 12.4% return on investment.

This is at asking price of $325,000.

Too good to be true? What am I missing, besides not factoring for prop management ?

[Frank Wong]

Financing a purchase with 3.5% down will always equal a negative cash flow unless you got an absolute killer deal. When a person has less than 10% down to put down on a property it tells me that they are not quite there on the savings part to invest.  You are buying and taking the loss now to get your foot in the door. That is what you are paying the high interest and fees for.  

Not a bad thing and people do it all the time you just need to understand why the deal maybe a loss. With the correct financing, it could be a good deal.  Just because your financing is bad doesn't mean it's a bad deal it just means its a bad deal for you at this time.