44% Cash on Cash? Am I missing something?

[James G.]

Hi everyone, there is a duplex that I am wanting to purchase, but the numbers seem too good to be true. Is this really a good purchase?

Purchase Price: $75,000

Taxes: $1,039

Insurance: $1,000 (assumption)

Maintenance: $2,400 ($100 per unit per month)

Management (At 8%): $1,248

Equals an NOI at: $9,913 (Will work 90% of the time bc of vacancy) = $8921.70 NOI

Debt: $2,400 (4% of $60,000)........... ($60,000 is 80% of purchase price)

Income= $8921.70-$2400= $6,521.70

$6,521.70/$15,000= 43.4% COC return.

$543 Cash Flow per month

Is this really that good of a deal? Am I missing something?

[Alexander Felice]

as mentioned above you're forgetting capex and vacancy

and you don't get to count appreciation or amortization as cash flow, they aren't cash. Unless you know a bank that will let you deposit amortization?

here is how my (admittedly conservative) calculator breaks this deal down:

capex 5%

vacancy 8%

management 10%

maintenance 5%

insurance 1000

taxes 1039

debt service - 286 (60K @4% x 30)

cash flow $115

CoC = 9.18%

OR

45% rule= (to be optimistic)

9913 * .5 = 5452(NOI) - 3437(Debt) = 2015 cashflow

CoC = 13.43%

Maybe you can beat 50%, and get 45% expense ratio, that leaves you with 13% ROI. Either way this is a good deal, but you have to use real numbers.