First post - modeling in Excel, cash on cash return always low...

[Michael S.]

Hi all.  This is my first post here on BP.  I've been interested in getting into investing in rental properties for a long time but have never taken concrete steps to do so.  I've started to get that itch again and am currently doing my research...reading books, modeling in Excel, reading here on BP and elsewhere, etc.  

I've got a fair amount of money in my taxable investment account that I'd like to move away from the stock market into more physical assets.  Although I have a good portfolio of paper assets, I do not have a pension so I am looking to generate some passive income for when I retire in about 20 years.

My problem is that when I run the numbers on some generic scenarios, it's hard for me to see how to get the cash on cash return much above the 6% range.  Here's an example:

Purchase Price (3/2 SFR): $150,000
Down Payment (20%):  $30,000
Loan Amount:  $120,000
Rent (1% rule):  $1,500
Expenses (50% rule):  $750
Mortgage (4.5% 30 year conventional):  608
Total Monthly Outlay:  $1,358
Monthly Cash Flow:  $142
Yearly Cash Flow:  $1,704
Year 1 Cash Outlay ($2,500 in loan "fees"):  $32,500
Cash on Cash Return:  5.2%

Any scenario I run from 20% down to 100% down results in a Cash on Cash Return from 5-6%.  What am I missing here?  I have tons of other questions but this is really my starting point, trying to see how profitable this could be and how fast I could scale up.  The amount of cash I have set aside for this venture could get me into about 3 properties assuming I put down 20-25%.