Can't make the numbers work

[Don Nelson]

So I've been analyzing properties for more than a week. I've built an impressive spreadsheet that accounts for just about everything, and it's remarkable how accurate the 50% rule is in general. Bottom line is this. I have to put 20% down on something, possibly do some initial repairs and rent it for $100/door NOI. It leaves my cash on cash returns in the single digits almost all the time. My question is this - Is it worth it? Spend $20K to pocket $100-$200/month? Is this as good as it gets?

I feel like I may be missing an important point - I know there are tax benefits, depreciation, appreciation potential, etc.  Do I just take the small return and be patient?

Thanks in advance for your patience. 

[Joe Villeneuve]

Actually, by not buying at 100% ARV, you can solve all problems. The small amount of cash you store in reserve is useless. It won't be enough to cover what you need to cover, if you have the problems you mentioned.

I have mentioned the solutions to these problems in many other posts.  It involves buying with the ability to do a cash out refi, or Line/Loan of credit, or a source for non-lien able debt.  These are all lump some options that are larger than the slow bleed form your cash flow could ever hope to cover, but they are paid for in the loans...at a much smaller amount than what you are taking out now.  

Let's compare:  

1 - Right now you are taking out $265/month which translates to $265/month less in cash flow.  This will only give you about $3200/year...but that total comes at the end of the year.  If something happened in 3 months, you'd have less than $800 to cover it.  WOW...that will help a lot won't it.  This method is a "feel good" fictional solution.

2 - If you financed it from a refinancing (this is why you can't buy at 100% ARV...not the only reason though), and added $5,000 right out of the gate, at 4.5% for 30 years, would only add $28/month to your mortgage...and only decrease your CF by that same $28/month.

Let's see now.  $265/month gets you $3200 at the END of the year, vs., $28/month gets your $5,000 immediately.  Which would you rather have?