First deal - want to learn from your experience

[Ian Hummel]

Hi everyone. After months of evaluating deals (mostly for fun/practice) I found one that I feel pretty good about it. I was hoping to get some feedback from someone with more experience about the main parameters. Here are the numbers:

• 4-plex in decent neighborhood
• Asking price $650K
• Rent roll $60K per year
• Assumed 50% expenses, so NOI @ $30K

I am trying to balance the following factors

• How much to pay?
• How much cash flow do I want?
• How much ROI do I want?

For example, let’s say I do 20% down and get it for $640K

• Debt service w/ 30-year fixed @ 3.9% = ~$29K per year
• Cash flow for the property is $1k for the year (BUT could be a lot higher if expenses are kept low)
• CoC is 25%

I don’t know if I’m comfortable with that low of cash flow, even though the cash on cash looks so good. Let’s say I do 25% down and get it for $640K

• Debt service $27K per year
• Cash flow $3k or more
• CoC goes down to 20%

Am I looking at this right?

• What do people with more experience consider when evaluating cash flow vs CoC?
• With conservative assumptions on expenses (50%) does it ever make sense to invest in a $0 cashflow property provided the CoC is high enough?

Any feedback is appreciated!