Need Smart People to Take a Stab at This Analysis!

[Brandon Hall]

Hey Everyone,

I found a house and would like some help with the analysis. I believe I am on the right track but I know there are some brilliant analysts on this site so please jump in an help!

The house is less than a tenth of a mile from central campus of a university with enrollment of 29,000 students. It is also less than a mile from the downtown area featuring bars and restaurants. The area experiences high rental demand and around 5% of homes in the area are owner occupied.

Asking Price: $337,900

5 beds, 3.5 baths, 3,743 sqft, built in 1953, heat pump, detached garage, new roof in 2007, sold in 2007 for $335,000.

Comps are valued at around $300k according to Zillow (I don't have access to MLS)

Monthly Rents: $2,500 - 3,000; Annual Average Gross: $33,000 rent

Property Taxes: $3,700

Insurance:$750

Maintenance & Repairs: $9,500

Other variable costs: 6% of rents

Vacancy Rate: 3% (College town - generally have 5-15 days before new renters move in)

Downpayment: 25%

Years: 30

Rate 4.35%

I am roughly estimating $5,000 in improvements though I will get a contractor to provide me with his/her estimate.

At the purchase price of $337,500, I am getting a cap rate of 5%, cash ROI of less than 1%, and an annual cash flow of $710.

Obviously these are horrible returns. At a purchase price of $290,000, I am still only seeing a cap rate of 6% and annual cash flow of $3,300 which is still not where I want it to be.

So is this market just bad for investing? I doubt I'd be able to get it below $310,000. How can someone purchase this house and be happy with those numbers? Did I do something wrong?

[Ned Carey]

Originally posted by @Brandon Hall:

I know there are some brilliant analysts on this site so please jump in an help! . . . Obviously these are horrible returns.

You don't need a brilliant analyst. you figured it out yourself.

You need to find less expensive areas to invest or at least higher rents relative to the price. You can flip in areas that expensive but generally they don't cash flow well.