Purchasing first rental property

6 Replies

Buying a HUD half duplex for $142000 in Shawnee KS. The other half sold for 165k earlier this year. Putting 25% down. Managing property ourselves. Going rent in the area is $1400 a month.

Monthly expenses are $891 (tax, mortgage, cap ex. repairs, vacancy-5%). I calculated $100 a month for repairs just in case. And we are approximating 5k (I'm being conservative) to fix up minor cosmetic issues (we already had an inspection).  Closing cost 2k. 

I calculated Cash on cash..came up with approximately 11%

Is this a decent cash on cash? I'm a novice at this and hope I calculated the numbers right.  Please help me out 😊

Can you itemize out each of your expenses that make your $891 total?  That way I can better see the numbers you are working with and evaluate the deal better. 

Expense breakdown monthly (although the going rent is $1400, I calculated based on $1300 just in case): 

Mortgage--$529

Tax--$200 ($2400/year)

Repairs--$100

Vacancy 5%--$65 

Comes to $894 (not 891, sorry)

Did I miss something?

While you mentioned your numbers are conservative, I would increase them a bit more to cover your absolute worst case scenarios. Particularly the vacancy/repairs. You also missed the capital expenditures (not the same as repairs). I recommend 8-10% per. Also, even if you're not intending to use it, I suggest accounting for the prospect of a property management expense (you never know). Best of luck!

Do cap expenditures actually go into the cash on cash equation? I will have 5k set aside for that. But I'm reading that cap exp shouldn't count against cash flow because it increases the value of the property? 

I calculated $100 for insurance a month...cas on cash is now 8.5% at $1300 for rent. If we get the $1400 for rent that we hope we can get it's still at 11%. 

Yes, owning half the duplex. Our goal was to buy a full duplex but they go fast here!