Check My Math for a Memphis Investment

[Dan P.]

Hello,

I'm in the process of purchasing a SFH in Memphis but my numbers are calculating an annual loss of almost $1,600/year. Is this a poor investment or am I over estimating expenses? Context: This is a SFH built in 1969 that has been rehabbed extensively (new roof, new plumbing, new HVAC, etc).

Purchase Price: $190k

Income:  $15,540 ($1,295/month)

Expenses:

Taxes: $1,975
Insurance (property & earthquake): $1,252
PM fees (10%): $1,554
First month's rent fees (PM placement fee): $647.50 (assuming new tenant every 2 years)
Vacancy (5%): $777
Maintenance (10%): $1554
CapEx (5%): $777
Mortgage (25% down, 3.125%): $7,320
Turnover costs (assumption is $2,500 for each turnover every 2 years): $1,250

Total:  $17,106.50

Cashflow: -$1,566.50 annually

I may be a worst case scenario kind of guy with some high expense assumptions, but I don't think there are enough ways to reduce the expenses/assumption to cashflow $1,000/year.  What are your thoughts, am I being unreasonable?

[Timothy Lewis]

I knew it wasn't going to cash-flow based off of your first two values: Purchase Price and Monthly Rent. Let me guess, you're buying this from a Turn Key company? 

You may be able to negotiate 8% instead of 10% for PM fees. Vacancy, turnover cost, and your tenant placement fee could be eliminated depending upon whether or not you get a long-term tenant, increasing annual income by about $2675. However, you should always be conservative and include these cost in your calculations, as you did. Due to the fact that all CapEx items are new and the property was fully rehabbed, the money I'd allocate to maintenance and CapEX would be a tad lower. But not enough to make a significant difference. Everything else looks about right. The beautiful thing about numbers is they don't lie!