Is this a good sell?

[Mark Cohen]

Hello everyone,

So I am looking to flip a condo - I Had purchased for 40k about a year ago all cash and it has made me about 12% back in a year. Tenant is moving out at the end of the month and I put it on craigslist for 55k and got an offer for 15k down and 1k per month till paid up

It sounds like  a decent offer but am I missing anything?

Mark

[Matt Vogt]

The downside is that you'll end up with 25K out of pocket (2 + years of payments) before you have all your capital out. If you made 12% holding the property last year, then you were making roughly $400/mo by my calculation... 

Anyhow, you'll have an initial cash outlay of $40,000, then cash inflows for 18 months at $400/mo. Then you have a cash inflow of 15K, then you have $1000/mo cash inflow for 40 months. Overall, you make $62,200 over 4.9 years... a total profit of $22,200. 

A straight calc shows $22,200/4.9 = $4,530/ year. 

Now if you discount the cash flow by your cost of capital (which you should), you'll come up with another figure. The question you need to answer is what is your required return, your opportunity cost? A good metric I would use would be the historical return on the stock market of 10%.

At 10% cost of capital, you have a NPV (at time of doing the deal) of $8,355.21. $8,335.21/40,000 = 21% ROI.

With that, I would say that it's a good sell if the following conditions are met: 1) you don't want the property to continue making money for you beyond the sale, 2) you can reinvest the profits into another good deal. 

Good luck and nice deal.