Turnkey Property: Bessemer, AL; Cash Flow: $2,207; 36.7% ROI

[Marco Santarelli]

For more information please contact us at (800) 611-3060 or email [email protected]. For additional turnkey properties visit www.NoradaRealEstate.com.

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[Jerry W.]

OK I have to post this. Folks be careful about believing these kinds of claims. There are several problems with the above calculations. In my opinion they are not not using accepted practices in calculating these returns. There is no way a cap rate of 7.3% will give you a 36.7 ROI using even a 20% down payment. Normally vacancy is figured at 8% due to the time between a tenant moving out and painting, cleaning, and general repair in between tenants moving in and out, plus the time to show the property and vet the applicants. Next you have only a 5% allowance for total repairs including items like roofs, water heaters, sewer issues, etc. A more realistic allowance would be 15%, or at least 10%. Just the cost of paint and cleaning and carpet, replacing faucets, etc. are beyond this cost. Next no one can bank on appreciation in these markets, and if you can it sure does not factor in on ROI, and it will not show up on IRR until the property is sold. You notice they do not include the roughly 8% cost you would incur in order to sale the property and get that idealistic IRR. Keep in mind that while interest is tax deductible it also reduces your profit as well so it is a wash. Depreciation is nice, but if you sale the property you must pay a recapture fee which will of course reduce your IRR. This chart also shows an increase in rent every year which also does not happen. Sometimes yes, always NO.

I have no worries that seasoned investors will not be mislead by this, but is obviously aimed at newbies.  I have looked at Norada properties, and nearly bought one.  While they have some good ones I have real heartburn on this kind of advertising.  Please look at the way others calculate the returns on investment properties in the forums.  Better yet post the same scenario with these expectations and ask folks to evaluate your deal.  It will open your eyes.  I don't want to hurt someone's business, but these are not numbers that seasoned investors would rely on.  Perhaps folks like @Jay Hinrichs, or @Bill Gulley, or many others could expound upon.