ROI analysis in 38115 SFH property home

3 Replies

I have a 3/2 sfh in 38115, Memphis, TN. It is doing okay at the moment. I am getting ROI of 12.88% at the moment.

1) Any advice on the ideas to improve ROI for the next home purchase?

2) Is there any risk going forward in the future in cash flowing this property for the long term??

Monthly Operating Income Scenario A
Number of Units 1
Average Monthly Rent per Unit 1,175.00
Total Rental Income 1,175.00
% Vacancy and Credit Losses 2.00%
Total Vacancy Loss 23.50
Other Monthly Income (laundry, vending, parking, etc.) -
Gross Monthly Operating Income 1,151.50
Monthly Operating Expenses
Property Management Fees 105.00
Repairs and Maintenance 10.00
Real Estate Taxes 126.00
Rental Property Insurance 49.78
Homeowners/Property Association Fees
Replacement Reserve
Pest Control
Accounting and Legal
Monthly Operating Expenses 290.78
Net Operating Income (NOI)
Total Annual Operating Income 13,818.00
Total Annual Operating Expense 3,489.36
Annual Net Operating Income 10,328.64
Capitalization Rate and Valuation
Desired Capitalization Rate 8.00%
Property Valuation (Offer Price) 129,108.00
Actual Purchase Price 119,900.00
Actual Capitalization Rate 8.61%
Loan Information
Down Payment 35,000.00
Loan Amount 84,900.00
Acquisition Costs and Loan Fees 1,500.00
Length of Mortgage (years) 30
Annual Interest Rate 5.250%
Initial Investment 36,500.00
Monthly Mortgage Payment (PI) 468.82
Annual Interest 4,428.72
Annual Principal 1,197.13
Total Annual Debt Service 5,625.85
Cash Flow and ROI
Total Monthly Cash Flow (before taxes) 391.90
Total Annual Cash Flow (before taxes) 4,702.79
Cash on Cash Return (ROI) 12.88%

Hi, @Mike Park . How long have you owned the property? My hunch is that these numbers represent a relatively short time period.

The most glaring issues with your analysis are vacancy (usually 5-8%), repairs, and lack of CapEx reserves. I usually use 15% combined for CapEx and Repairs in my underwriting. My guess is that your actual cash flow will settle out to ~$200/month, so that's closer to a 7% CoC ROI.

If you want better returns on the next one, look to MFR where you can get a lower per-unit price and start to see some efficiencies of scale.

@Jaysen Medhurst @Curt Davis

owned it for 2 years. no vacancy and repairs up to now. That's why my coc ROI is really good. I guess I try to avoid from MFR since they have higher vacancy rate and lower quality tenants.

I guess only way I can increase my coc ROI would be start off with the good home price. what do you think ?

Those are the key words, @Mike Park , "up to now."

I can't tell you what strategy is right for you, but MFR actually have lower vacancy risk since if a SFR has turnover, that 100% vacancy. If a fourplex has a vacancy, it's only 25%. You are right, though, SRF does tend to have lower vacancy overall. I think you can get great tenants no matter the asset.

There are 3 ways to increase your ROI: get it for a lower price, raise rents, lower expenses. Another knock against SFR is that there aren't many ways to lower expenses. You also can't force appreciation, like you can with a commercial property.

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