56% CoCROI but <$100 Cash Flow. Would you take this deal?

[Aman A.]

I have a property (3/2) under contract at $48,500. It's a foreclosure and it requires $13K of work. Market rent is roughly $800-$825. ARV is 80K - 85K. I would be able to pull out the purchase price + rehab cost out of the deal. According to my numbers I have 56% cash on cash return but only $87 in cash flow per month.

Purchase Price: $62000

Monthly Rent: $825

Expenses:

Property Taxes: $500 annual          $41.67 monthly

Insurance:           $874 annual         $72.83 monthly

Property Mng:    10%                        $82.5 monthly

Repairs reserve:  10%                       $82.5 monthly

Capex reserve: 10% $82.5 monthly

Vacancy                  5%                        $41.25 monthly

Total Expenses: $403.25

Mortgage: $334.77 ($60625 in principal at 5.25% at 30 year)

Cash flow: 825 - 362 - 334.77 = $86.98

How do I view this deal? Is this something I should take or not?

[Joe Villeneuve]

Terrible misleading deal.  The CoCR doesn't justify the cash flow.  The CoCR is only as good as the ability of the property to sustain it.  At less than $100/month, it wouldn't take much to be negative cash flow...and be going backwards on the CoCR.

No.  You must have both.  They each support each other.  One without the other is incomplete.