cap rate and cash on cash return

[Min Kim]

Hello,

I currently have my primary home rented out due to moving. I think the home is doing great, but maybe it’s not? I ran the numbers on it just to see how it would’ve looked as if I was looking to purchase the home as a rental and not a primary home. Just from the cap rate, it seems like I wouldn’t have gone through with the purchase?

I’m not sure I’m doing this right but for some reason the numbers look terrible, but in reality I believe it’s making good cash flow.

The cap rate (NOI / value) is 1.37%

Purchase price - $336k

Monthly net - $386

386 x 12 = 4,632

4,632 / 386,000 = 1.37%

Cash on cash (VA loan) 77%

Cash - $6000

Monthly net $386

386 x 12 = 4,632

4,632 / 6000 = 77%

If you saw those two numbers before purchasing an investment, would you have walked away??

[Tyler Gibson]

@Min Kim So I currently don't pay myself anything but that is because I am trying to grow my portfolio so that one day I have enough cashflow that I will not need to have a 9-5 job. I can't say what the best practice is as it is all up to personal goals and preferences. I would thinking holding 10k in reserves would be fine to then start paying yourself the cashflow but it all boils down to goals.