Does This Deal Make any Sense??

Question

So I'm running the numbers on a property that I found, and I'm trying to see if they make sense to you guys...

Assumed:
30 Year Fixed Rate @ 7%
Loan Amount: $25,000

Monthly 	Annually
INCOME

Gross Income       $   850          $  10,200

Vacancy               $   50            $   600

Net Income	     $  800	         $  9,600

EXPENSES
Property Taxes     $   225.16         $  2,702

Insurance             $   33               $   400

Maintenance	    $  100	           $   1,200

Net Expenses	    $  368.16	 $   4,302

NET OPERATING INCOME	$   5,298

Mortgage	        $  166.32	        $  1,995.84

CASH FLOW                             $3,302.16

Richard Rabineau · Answer

Tiara, what part of Detroit is this in? Sounds like a great deal!

Tom C · Answer

Tiara,

Don't over think your numbers. 
Rent = $850/month 
Expenses = $425/month (includes taxes and insurance) 
NOI = $425/month 
Debt service = $166 (just the P&I payment) 
Cash flow = $259

Those taxes are horrible. By time you get done screwing with all the numbers this house will be gone. If it's in good shape get it under contract. Its a great deal.

J Scott · Answer

Unfortunately, there's not enough info to determine if this is a good deal or not...

Specifically, without knowing how much cash you put into the deal, there's no way to determine if your ROI is reasonable or not.  For example, if you put down 20% on the deal (which would be $5000, with a $25,000 loan), your cash-on-cash return would be 66%, which is great.  Of course, if you put down $50,000, your cash-on-cash return would be around 6% -- not very good.

So, that's a big factor.

Also, you're missing a bunch of expenses that I would expect to see.  For example:

- Advertising Costs
- Lawn Care
- Termite Inspections/Repair
- Capital Expenses
- Property Management (if you *ever* plan to use one)
- Utilities (during vacancies)
- Administrative
- Accounting
- Legal

Lastly, your vacancy rate is assumed to be under 6%...is this really feasible for this location/property?  And does this include rent loss due to things other than vacancy -- for example, concessions or non-payment?

Some things to think about...

Tiara Murray · Answer

Thanks J, I'll rework the numbers, and add all of those factors..