How do I figure ROI or cap rates on a rental property?

7 Replies

Hello, everyone.

I am new to real estate, so I need some advice. I am confused as to ROI and cap rates. I know that we have a good deal, but I would appreciate somebody breaking down the numbers for me. We purchased a property for $5,000. It needs about $3,000 in repairs (per contractor) to have rent ready. County tax assessed at $38,000. We want to sell it as is for $25,000 cash or $30,000 financed at 10% for 10 years with 10% down. Numbers are as follows...

$3,000 down with a note for $27,000

$356.81/m mortgage

$ 93.14/m taxes

$ 40.00/m Insurance

Total expense = $489.95

Total Income = $600.00

+ cash flow = $110.05

Would this be a good deal for another investor? (We have other similar properties waiting to be sold.) All advice would be greatly appreciated.

What kind of property is it?

Wow.  I can't get an old mobile in a park for that price.  I would be buying and holding all over the place and keeping quiet about it!  If you mean is it a good deal to an investor as like a turnkey rental?  The 10yr term makes the pmt a little high.  Add in cost of mgt and the CF drops to $50 bucks.  A month of vacancy or a water heater replace kills a whole year of cashflow. Why not hold for yourself?  Do you have a partner?  You mentioned 'we'. Either way it looks like a great deal for you @Scott Rauch  !

Sorry.

It is a single family residence.

Not really an Investor friendly deal as your math is missing a few expenses and when you add in those expenses it's not worth it...at least not to me.

Your best bet is to find an End Buyer, not an Investor, to sell it to and hold the note if you want.

Good Luck!/

That's not enough cash flow for me to take on the risk of a cheaper property. I'll only do cheaper properties with very high cash flow, or more stable properties are fine with less. Risk factor issues.

Originally posted by @Scott Rauch :

Hello, everyone.

I am new to real estate, so I need some advice. I am confused as to ROI and cap rates. I know that we have a good deal, but I would appreciate somebody breaking down the numbers for me. We purchased a property for $5,000. It needs about $3,000 in repairs (per contractor) to have rent ready. County tax assessed at $38,000. We want to sell it as is for $25,000 cash or $30,000 financed at 10% for 10 years with 10% down. Numbers are as follows...

$3,000 down with a note for $27,000

$356.81/m mortgage

$ 93.14/m taxes

$ 40.00/m Insurance

Total expense = $489.95

Total Income = $600.00

+ cash flow = $110.05

Would this be a good deal for another investor? (We have other similar properties waiting to be sold.) All advice would be greatly appreciated.

Hi Scott,

Check out below a blog I wrote for Bigger Pockets about calculating the numbers on a potential purchase. Its pretty straight forward without to many variations:

http://www.biggerpockets.com/renewsblog/2014/09/06/how-to-crunch-numbers-painlessly-using-simple-rule/

I hope you find it useful.

Thanks

Originally posted by @Scott Rauch :

Hello, everyone.

I am new to real estate, so I need some advice. I am confused as to ROI and cap rates. I know that we have a good deal, but I would appreciate somebody breaking down the numbers for me. We purchased a property for $5,000. It needs about $3,000 in repairs (per contractor) to have rent ready. County tax assessed at $38,000. We want to sell it as is for $25,000 cash or $30,000 financed at 10% for 10 years with 10% down. Numbers are as follows...

$3,000 down with a note for $27,000

$356.81/m mortgage

$ 93.14/m taxes

$ 40.00/m Insurance

Total expense = $489.95

Total Income = $600.00

+ cash flow = $110.05

Would this be a good deal for another investor? (We have other similar properties waiting to be sold.) All advice would be greatly appreciated.

ps. I would sell it for for more than $30k if your owner financing and I would also look at a larger down payment than just 10%.

At least $8 down so you get your initial funds back.

Just my opinion.

Thanks

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