is this a good deal?

[Jace Perez]

hey guys, i was just analyzing deals for practice and i came across one that seems to be pretty good, i put in all the numbers and it came out to be $800 a month in cash flow, would anyone be able to let me know if the way i ran the numbers was correct.

property: https://www.redfin.com/OH/Clev...

[Issac Droblyn]

* Disclaimer - I am not currently invested in real estate. However, I do like math, and have an interest in the numbers as well.

Because you are the investor, you will need to define what a "Good" deal is to you.
What is your target Cash Flow?
What is your target ROI?

Based on the property you linked and the $800 you expect in cash flow, I'm presuming that this would be a leveraged purchase. You need to provide some additional information so that we can track along with your train of thought.

    How much Down?
    What interest rate do you expect?
    Do you intend to use a management company?
   What % of assessed value are you calculating for CapEx?
   What vacancy % are you calculating for (Because it is a multi-unit, your turnover might be higher)?

I'm not in the Ohio markets, so I cannot tell you if the $800/mo per tenet is actually what you will get. However, I am suspicious of the fact that the listing only has one of the rooms as occupied (i.e. 75% vacant currently). Are there repairs that need to be done on the other 3 units that would increase the cost of entry? Is $800/mo above market?

Additionally, the property you listed was built in 1907. There are special problems that come with older homes that may increase the cost of entry.
   Old/Aging/Lead Pipes.
   Lack of central HVAC or modern Insulation.

Based on my numbers, this "$800" cash flow is heavily dependent on you taking on risk by taking out a loan over 30 years, no up-front repair costs, and no property management. These calculations were run on the following assumptions:
   6% interest on the loan.
   20% down payment
   30 Year Loan. 
   $700/month per unit /w 5% vacancy.
   2.5% CapEx + General Repairs
    $6 per $1000 coverage (annually) for insurance (I don't know what insurance is in Ohio)
   $1628 Annual Property Taxes (Pulled from the Redfin, but subject to potential error)
   $100/mo for Eviction expenses (Which will happen, eventually. Lawyers are expensive).

I've attached a screenshot of the spreadsheet if you really want to go in more detail on that math. With these values, you could potentially have $769 cash flow, before federal and state taxes. Because this would be leveraged, you'll need to determine if that volume of risk is worth it. By taking on the debt, you will be stuck paying it back for 30 years to maintain that level of cash flow. On paper, you could have a reasonable Cash on Cash annual return - but from a net worth perspective, it will take you multiple years to equalize. Make sure you consider net worth when evaluating the level of risk you're willing to take on. Highly leveraged properties will have great cash on cash, but come with a lot of risk.