High COC Returns - Should I Buy?

Question

So I've been running some numbers in a nearby market (Evansville Indiana) on some multi family properties I'm seeing, we don't currently have any in my local market. Evansville is about an hour away from me so I would likely hire property management. Below are the cash on cash returns I came up with for each:

Deal 1: 24%Deal 2: 26%Deal 3: 29%Deal 4: 22%Deal 5: 32%

Each deal is a duplex except deal 5 actually includes 2 duplexes (they offered to sell a 2nd on top of the listed duplex for 40% the price). In my calculations I budgeted 10% for management, 10% for R&M, 5% for Capex, and 5% for Vacancies for a total of 30%.

They've all been on the market for less than a month. They're obviously not the nicest properties or in the best area but the numbers pencil. Interior wise they're all updated and look good and they stay rented. Occupancy rates for the city are at 93%-95%.

As long as the structures, electrical, and plumbing are in good shape should I be jumping on these deals? Anything I'm overlooking here?

Logan Weber · Answer

@Nicholas L.  Yeah that's definitely true, thanks for your feedback! I had been skeptical myself but the numbers looked so good that I figured I'd get a 2nd opinion to see what I was missing. Think I'll pass on them and wait for an opportunity I feel more comfortable about

Nicholas L. · Answer

@Logan Weber

yes - you're likely overlooking that this is spreadsheet math that doesn't reflect the experience of actually owning these, and you won't make anything like the returns you're showing here.

i don't know a thing about the Evansville market, but I'm assuming these properties are in a more challenging area which you alluded to.so for example - what does a $2-4K turnover every year do to the return?  takes it to zero. and 5% a month for capex is utterly nothing on a big ticket item like a roof, furnace, porch, retaining wall... each property needs what it needs.  maybe some have new roofs and others have roofs with no life left.

especially if these properties are sitting on the MLS and no one has purchased them... that means everyone else has passed on them.

hope this helps

market is challenging right now

no one is offering properties for new investors to swoop in and make easy money on