I'm calculating ROI - need assistance.

[David Cox]

...and I want to see if I'm correct. Lindale TX has stellar school system. So property values are good, stable, and many want to move here. I'm calculating 20-40% annual ROIs over 10 years- Is this real? If not, what am I missing ? Equity and P&I are from actual Mortgage tables. Cash flow is low BUT overall looks like a good deal. Annual appreciation somewhere between 3-3.5%- I'm being conservative with 3%. Equity in the 5 & 10 year cells are property value - Loan balance.

[Sam LLoyd]

Couple comments: First, I'll wait for a tax guy to way in on the accuracy of your deductions and depreciation, since that's a huge part of your monthly ROI calculation.

I think the rest of your numbers look reasonable if you do a lot of work yourself and manage yourself... and do a good job.  That being said, even though a good manager puts very little time into managing, it is still a commitment, and will tie you down.  I like to calculate for management using 10%, and then pay that money to myself.  So, in this case, if you had to hire management for some reason, you'd be in a negative cash flow.  If you do realize those tax advantages, you'll still be positive at the end of the year though.

Equity does not give you a return until you sell or refinance, both of which have costs. So, if you're anticipating selling the house in 10 years, and want to know what your IRR is, you have to figure the cost of selling and bringing the building up to the buyers standards... 10% should be a good number unless you've let maintenance slide. So, that would knock your returns down a bit in the end, but not that far.

Those are my first thoughts.  If you're fine going with a 10 year plan, and don't mind managing and living in that area... looks good.  I personally am looking for monthly cash flow because I hope to move into investing/managing full time, so this would not work for me.  The returns are very similar to my first house... which I managed for 8 years, then refinanced and put the equity towards a 4-plex that does bring me in a bit of cash every month.