Only $100 monthly cash return

[Louis Phlips]

Hello all! I'm a newbie to this world, but want to get my feet wet and get an investment property from a turnkey investing property management company. I've been talking to one in the Memphis area, and essentially I would get a $100 monthly cash return.. this seems very low to me and too thin of a profit margin to risk any potential damage/repairs/ vacancy on top of this.

The down payment would roughly be $25-$28k on a $120k home, and I'm being told that returns would be 15% including cash return, appreciation and mortgage being paid off. Am I wrong to be concerned? Is this typical for a property of this price? The turnkey company would take their 10% cut, and this $100 is after accounting for 5% vacancy and 5% repairs.

[Joe Villeneuve]

First, STOP analyzing with %'s.  Have you ever bought anything paying a "%"?  No...you pay in $$$$$.  5% for Vacancy and Repairs means N  O  T  H  I  N  G.

The specifics here, in $$$$$, is this:  $100/month =>> $1200/year

5% of $800 is $40/month, which ends up being $480/year.  Seriously.  What is that going to cover in the real world of Dollars and Cents?

If you had one month of vacancy, would $480 cover your expenses/month?  How many months?

If you had to replace the roof, at a conservative $3000, will your $480/year cover that?

Let's run a minor "oooops" that happens often:

1 - Tenant leaves (let's max this out and say at the end of the year).

2 - One full year of vacancy and repairs and cash flow equals $2160.

3 - You have to replace the roof, paint, minor repairs and cleanup.  Total cost to you = $3300.

4 - It takes one month to fix roof and fill vacancy, so you have one month of expenses to cover = $700.

5 - Total needed in month 13 = $4000...and you have accumulated only $2160, and show a loss of $1840.  This means, that you have to have no vacancies, and no other expenses, for the next year and a half, just to break even.

Forget the use of "%" when you analyze.  They only lead down the road to an illusion of security...and the reality of doom.