Hi all,

I am trying to make sure my calculations with my due diligence are accurate upon selecting my first deal for a SFR rental that would be a newly renovated turnkey managed by a PM. I recently fed my numbers through the BP Rental Property Calculator, being one of the first few times I've familiarized myself with it. My goal is monthly cash-flow, and from what I've been reading, I should realistically pursue a minimum ~8-12% cash-on-cash return with a 20% down purchase.

Are the numbers below feasible and is my Cash-on-Cash Return calculation below accurate? I think this was a good exercise to try on the BP Calculator either way.

PROPERTY INFO

4 BR, 2.5 BA near Little Rock, AR

$31,980 cash purchase (20% down, 30-year fixed)

Property valued at $159.9K

INCOME:

- Rent: $1,295/mo (Year 1), with $50 monthly increase in Year 2

EXPENSES (Total $1,230.61):
- P & I (30-year fixed at 4.75%) $667.29/mo
- Property Management (10%): $129.50/mo
- Property Taxes: $163.67/mo
- Homeowners Insurance: $50.40/mo

- Repairs/CapEx (10%): $129.50

- Vacancy (7%) = $90.65

RETURNS:

- CoC = 2.42% @ $64.39/mo

QUESTIONS:

1. Should I include closing costs as part of cash needed (putting 20% down of purchase price) when calculating Cash-on-Cash Return?

2. Since the property management company charges first month’s rent placement fee for a new tenant, how should I factor this in with my Cash-on-Cash return - do I also lump it into cash needed?

3. Am I missing any critical expenses to add above?

It sounds I should pass on this property if my math is correct? Given a ~2% CoC return is not enticing or sustainable given my goal is monthly cashflow. Or are my estimates too conservative?

Thanks for any input! 

Yes include closing costs in cash on cash return. Yes pass on this property as it’s way to low in cash flow. You’re not missing any major expenses

Closing cost should be part of cash yes.
Turn key usually comes with a tenant so you should need to have tenants placement fee.

Who is the TK provider and where exactly is the property?
Near LR can be anywhere....

If the provider do a compleat rehab then the Capex can be reduced.

But anyway 2% cash on cash is not acceptable. You may get same results of pitting the money in the bank.

Not a good property. IMO, it should be priced closer to $120k from a purely cash flow perspective.

Who will mow the lawn? That can be another $60 a month

Who pays water/sewer/trash? That can add $80 a month

We just closed on a house for $110k that will rent at about the same to give you some perspective (and found it right off the MLS, though it took about a year of searching.

Agree with the others, pass on this property, especially considering the placement fee by the property manager.  That should be counted in your vacancy rate.  At $1300 each time you turnover, it's a huge expense.  You would have to average like 3 years per tenant to make up the lost revenue.  And raising the rent each year on the same leaseholder is motivation for them to move out when the lease is up!  

Yeah I wouldn’t touch that.. I know I live in a little bit of a depressed area but I have several houses that I paid 20,000 or less for and rent out for 500-550 per month.

This might be an appreciation play. But if you are investing purely from cashflow perspective, it doesnt seem like a good deal at all. CoC is just tooo low as other have mentioned.

Yes to all your questions. I actually live 45 min from Little Rock and I don’t see any major apprication in the next 10 years or so. The home value in Little Rock will probably rise with inflation at best.

from the purchase price and rent numbers, I'm guessing thus is a new build (less than 15 years old) house in an "A" neighborhood. so, with the young age of the house plus the renovation, it is likely that maintenance will be very minimal. I'm guessing the odds are good that the tenant will be higher quality. So, you may see higher COC returns than that 2%, you are projecting. Maybe closer to 6%. Plus you have a shot at some appreciation with an "A" neighborhood, which will be amplified by leverage.

Agree with everyone above. From the math, it looks like you'd be paying $159k for $1295 in rent...that's .81%. That doesn't even break the 1% rule, and in the Little Rock area, I routinely get above 2%. Without even knowing the details, definitely pass. You can do way better in this area. And like others have said, I very strongly doubt there will be any appreciation in these parts, so you definitely want cash flow, unless you just want massive losses to try to write off on your taxes ;)