[First Post :) ] Given a known rent, how much can I borrow?

[Eric Kuo]

Hi,

This is my very first post, so please excuse my ignorance. I started reading BP, BP's books, and listening to all the amazing Podcasts a few weeks back. Finally have sometime to sit down and do some homework. At this point, I am trying to figure out the price point of a property being a deal or not given a potential rent amount.

After researching the area of my interest, it appears that for a 2 bedroom, I can rent for about $2550. And here is my math logic.

Assuming per month

• Tax = -420
• CapEx = -200
• Insurance = -30
• Vacancy = -425
• Management = -100
• Matainance & Repari = -42
• Cash Flow = -500

$2550 minus all of the above is $833. This would be the max of my mortgage can be.

Given $833 mortgage payment per month, assume 30 year fix with 4.75% rate, the max I should borrow is $159,750 if I want $500 cashflow.

I used the PV function in excel. Assuming 75% LTV, the ARV will have to be at least $213,000.

Which means, the sum of my purchase price + closing + rehab + any additional cash I'd like to get (for next property) needs to be < $159,750 for the property to be a good deal, and that is also assuming I can get at least $213,000 ARV.

Is this logic reasonable? Am I missing something? Or am I way off?

Thank you!