Understanding the Numbers on Buy & Hold

[Account Closed]

• The property
• Property $200,000
• Down Payment 20% - $40,000
• 4 unit complex – rent per unit $800/month ($3200/mo total)
• 2% Rule –
• at 2% this property would rent for $4,000/mo
• This property is at 1.6%
• 50% rule –
• 50% of rental income will go toward expenses
• This property would be $1600/month
• This expenses include – repairs, vacancies, utilities, taxes, insurance, managements, turnover costs, and occasional big ticket repairs
• Net Operating Income – NOI
• Income after fees, these would be the fees listed in the 50% rule and do not include principle and interest
• For this property - $1600 (not the true number, but based on 50% rule)
• Cash flow
• Any money left after subtracting principle and interest from NOI
• Prinicple and Interest – 30 yr fixed at 4% on $160,000 - $764/mo
• Cash flow = $3200 - $1600 (NOI) - $764 (P&I) = $836/mo or $10,032/yr
• Cap Rate
• Annual NOI/purchase price
• $19,200/200,000 = 9.6%
• Return on investment of $40,000 over 30 year life of mortgage
• Cash flow - $10,032 annual return – 25.1% return
• 30 years = $300,960
• This is a conservative estimate since this money could obviously be re-invested as it was received monthly and the rent would be increased to reflect inflation over the 30 year period
• Property value at 3% appreciation for 30 years
• $485,452
• 30 year total return on $40,000
• 485,452+300,960 = $786,412
• This is a ~10.5% annual return on investment
• $40,000 invested in stocks/mutual funds at 7% would have returned $304,49

I believe this is all correct, but wanted to get some feedback to confirm my understandings of these concepts was correct.  Am I missing anything in these calculations.  Thanks.

Jesse