CategoryAmountPurchase Price$550,000Rehab Budget$185,000Closing Costs$17,000Total Project Cost$752,000Effective Gross Income$168,120Operating Expenses($60,000)NOI$108,120Debt Service($48,852)Annual Cash Flow$59,268Monthly Cash Flow$4,939Cap Rate (on cost)14.4%DSCR2.21Cash-on-Cash Return31.8% Hey @Chad Emerson, welcome to the BP Forum!

We obtained the full financial package, and the seller's "Pro Forma" is built on a complete fantasy.The descriptive reason for the high cap rate is that the seller is using deceptive and impossible expense projections.To get their advertised 15.26% cap rate, they are projecting that as their Gross Rent increases by $75,900, their Total Operating Expenses will simultaneously decrease.Here's the breakdown of their math:Taxes: They assume $0.00 in property tax increases, which is impossible.

These companies will draw mass employees to the area from out of state. 

Another issue on this sale is that the buyer was an employee of my brother-in-law's store.

In short: $558k gross, ~9% cap, modeled cash-flow of ~$92k/yr with professional management (or ~$140k if self-managed), and conservative 5-yr after-tax proceeds of ~$1.4M.I’m sharing the math, assumptions, depreciation treatment, and the risks/opportunities I saw (value-add ideas, occupancy sensitivity, and market comps).

In short: $558k gross, ~9% cap, modeled cash-flow of ~$92k/yr with professional management (or ~$140k if self-managed), and conservative 5-yr after-tax proceeds of ~$1.4M.I’m sharing the math, assumptions, depreciation treatment, and the risks/opportunities I saw (value-add ideas, occupancy sensitivity, and market comps).

When you sell the land and now have a note, the financed amount is then added to the balance sheet, as a debit, the credit is the land value and the second credit is a contra-account called Deferred Gross Profit.

But for my 2BR-LTR unit, the market rent is about half what I gross as an STR.

As a federal employee working closely with the military community, I’ve made meaningful connections on bases across the country.

That said you may consider a Solo 401k to contribute 10x more than an IRA annually if there's self employment robust enough and no employees. $50k might be enough to do some PMLs but probably not for the IRA/401k to actually own real estate.