Question about my 1st Cash Purchase / Investment Property

[Erman A.]

I am new to Real Estate investment , I have been looking for a deal for several weeks now  and I think I found one , I would love to have your opinion about this. I don't have a good credit score because I went thru business bankruptcy and had few personal guarantee so it effected me personally etc. etc. I solved it  but I lost my credibility and it will take several years to fix it.

I will purchase this place cash to generate passive income.

The apartment is $175K   2 Bed 1 Bath

HOA : $300 a month  x 12 = $3600 a year

Tax : $1400 a year.

Insurance etc. :$100 a month x12 = $1200 a year

Option 1 

If I rent the place 12 months contract , it rent for $1,650 a month.

$1,650 x 12 = $19,800 - HOA,Tax,Insurance = $13,600 NET

Option 2 

If I rent the place month to month , it generates $2,400  a month.

$2400 x 12 = $28,800 - HOA,Tax,Insurance,Internet,Electric etc = $21,540 - $4,200 Management Fee = $17,340

Option 3

If I do Vacation rental with Property manager cuts %30 and gives me %70 which is $25,000 After all the expenses.

The property value would go up to MAX  $205K-$220K in 5 years.

I really will appreciate your opinion on this..

Thank you,

[Mark B.]

I really don't know anything about Vacation rentals so I can't comment on option 3.  
As for options 1 and 2, are you really able to raise the rent 750/mo by going month to month? What kind of property is this?

For option 1... 300 HOA + 116 taxes + 100 insurance = 516/mo expenses. Do you have to pay for water/sewer/trash? Do the HOA fees include maintenance and Capital expenditures? Do you factor vacancy into that 1650 /mo income? I'm estimating closer to 1016/mo in expenses (if you manage) leaving you with 7600/year net. Which is only a 4% cash on cash return. I think you would be better off putting the money in a fund.

Option 2- IF you could realy get 2400/mo... same 300 HOA + 116 taxes + 100 insurance + 50 internet + 75 electric + 350 mgmt (your numbers) = 991/mo expenses. And again I'd have to ask about the maintenance/capex/vacancy. Assuming those expenses, 1581 expenses ish im guessing. Leaving you with 819/mo or 9828/year net. Which is 5.6% cash on cash return. Still think youre better off putting the money in a fund.

These are also just my rough numbers, but at least if it were me, I'd pass on this property and keep looking.  Unless of course someone else can chime in on option 3 being viable