Does this deal make sense?

[David O.]

Hi - I am new to evaluating deals so any feedback is appreciated:

My goal here is a buy and hold- seeking cash flow:

?Purchase Price $30,000

?Rehab – $35,500

?Closing cost $2,500

?Total investment $68,000

Monthly

Rental Income $850

Expenses:

Property Management $85

Property Taxes $22

Insurance $60

I am plugging it into the rental spreadsheet and with 8% vacancy loss plus $2,000 a year in additional repairs I come out with:

8% cash return on investment.

Is there a level of return I should be seeking if I am looking for primarily cash flow properties?

Thanks for your feedback.

[David Beard]

$35k to get it to a rent-ready state? That sounds excessive. Can you provide a rundown of the work.

10% is a common threshold many use for the net yield on a rental, of C+ to B- range. Down to 8% for a solid B, up to 12% for C class.

That said, this is very very very area-dependent. Many areas have poor net yields, even on C properties (west coast, northeast coastal). I would think that Maine is not a terrific cash flow market, generally speaking, but probably has reasonable cash flow in certain submarkets.

If you want to invest locally, which is a great idea, sometimes you have to take what's available. If you can obtain a 15% gross rent yield (8% net, as you compute), then that is very reasonable in many areas of the country, particularly as your property will be very nicely renovated. If you finance it after the rehab (look up Delayed Financing Exception) at 5%, then you will increase your ROI to at least mid-teens and have cash to move on to the next project.