42k and rents at 850 a month??? ...am I missing something here?

[Corey Demuth]

I'm new to all of this so if I am missing something obvious, sorry.

I have been lurking and reading some threads, trying to absorb as much information as I can. I came across this and I don't understand:

http://www.biggerpockets.com/properties/1797

The price is 42,500. So, even if you bought it at the asking price without trying to barter, and put 10% down, a 15-yr mortgage on the remaining 38,250 at 8% (a bad rate as I understand; I am purposefully trying to assess this as a 'worst case scenario' to make sure it is profitable even if the loan doesn't come out as well as planned)

That means payments are 365.54/month + 149.42 taxes + I have no idea how much for insurance. According to that ad, which of course may not be reliable, the house rents for 850 and is in move-in condition.

850 - 365.54 - 149.42 = 335.04/month profit (minus whatever other expenses I may be missing here.)

If you go back and change that mortgage to a 30yr, at 7%, your monthly payment drops to 254.48, so your profit rises to 446.10/month (again, minus whatever additional expenses I am missing).

Not a ton of cash but not a ton of work either, and presumably the value of the property increases with time and you build up equity in it without ever paying the mortgage yourself.

So why is this such a deal and why hasn't someone grabbed it already? Am I missing something? I was originally considering trying to buy a house (for myself, to live in, not an investment) this fall but now that I am seeing such cheap rentable homes in areas like buffalo, I am thinking about staying in my current apartment for another year or two and picking up as much property as I can be approved for loans to purchase. Am I diving into shallow water?