Final Interview Case Study

[Ryan Law]

Hey Everyone! I've got a final interview this Thursday, and it seems pretty straightforward. "analyze these 3 SFR's as potential investments". I've done the numbers, accounted for mgmt fees, vacancy rates, etc. Pretty easy math without a loan. The only thing that's tripping me up is the "1yr hold period". With a one year hold, assuming 2% closing costs on the front, and 7% sale costs on the back.. it seems like these would all be bad investments..all the numbers come out to have negative IRR's, cash-on-cash return only 4-5%. It seems like 99% of SFR's would be bad investments on a 1yr hold.. but that seems too simple, and it feels like I'm missing something. Any thoughts? The only thing I could think of that could give any glimpse of a good investment on a 1yr hold is that the back-end value would be different since you've placed a tenant and the property is cash-flowing. But, I'm pretty green to this! Thanks in advance for any expertise!

[Joe Villeneuve]

Final interview for what?  Why are you paying all cash?  That's the reason why all the analysis comes out bad. 

As an investor, your cost, your only cost, is the cash that comes out of your pocket.  This should be restricted to the DP on a loan where the rent pays for the loan and all other expenses.  You can't possibly pay all cash for something and get your money back in any reasonable amount of time.

The last line in your screen shot says it all...."...good luck!"