Newbie Crunching Numbers

[Anup Debideen]

Good evening everyone, I utilized my VA loan in early 2018 and I have a 1700sqft 3/2.5 in Chesapeake, VA. With the option of being able to transfer to a new duty station or stay in the area, I'm debating on how to proceed. Please let me know if I've done these numbers correctly utilizing the four square method to determine cash on cash return.

Rental comps: $1800-2k. Using $1850 for these examples.
Utilities (elect, gas, water, sewer, cable/int) will be covered by tenant.
I'll cover HOA.
No Vacancy or Capital Expenditures calculated (original loan doesn't afford it. refinanced loan allows it but should I transfer somewhere new I'd have to fund a PM).

Original Loan: $80 Cash Flow monthly / $960 annually. Zero out of pocket money. But I have a 960% return? (Doubtful).
Refinance: $295 Cash Flow monthly / $3,540 annually. A 17.7% Cash on Cash Return.

1) Based on experience how important is the vacancy/Cap Ex fund? I ask since this is a highly populated military area for rentals.

2) Anyone invest in Virginia where I've heard laws favor the tenant even if they've violated the agreement.

Ultimately, if possible I'd do the refinance option, manage the property myself, and utilize the remainder of my VA loan to buy another property for the additional three years I'll be in Virginia.

Any help and advice is greatly appreciated. Thanks!

[Kevin Sack]

Vacancy and capex are huge parts of ensure you are financially safe. Take your refinance option and add in these variables... One month of vacancy eats half your total annual cash flow. HVAC goes out? That's 2 years of cash flow. New roof? 2-3 years of cash flow. Did you factor in taxes? If you have to run scenarios as you did where "you cannot afford it", that means it is not a good scenario. Realistically, you should also be including 10% for property management as well because you might want to self manage now, but believe me, military life gets in the way and one day you may be sick of self-managing. Honestly, I would sell the place, take your profits (however much they may be assuming you did little money down with the VA loan), and get yourself into a 2-4 unit place and house hack that.