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Updated over 6 years ago on . Most recent reply
Is Negative Cash on Cash ROI considered a good investment ?
Hi BP Community
I am a newbie investor and trying to invest in the Mid West with the hope to generate positive cash flow. Since this is my first investment I am trying to play it a little safe. My concern is that I am getting a negative Cash on Cash ROI when estimating 20% down. I also think that I maybe a little too conservative with my numbers - Below is what I have so far and I was hoping if I someone could guide me in the right direction - This is a house in the Greater Indianapolis Area. Also please do let me know if there is anything I am missing. Thanks in advance :)
Asking Price: 170,000
| Unity Type | Square feet | Rent | Monthly | Yearly |
| 1 | 3bed/1bath | $ 1,300.00 | $ 1,300.00 | $ 15,600.00 |
| Monthly | Yearly | |||
| Gross Rental Income | $ 1,300.00 | $ 15,600.00 | ||
| Other Income | ||||
| Vaccancy loss | $ 109.20 | $ 1,310.40 | ||
| Total Operating Income | $ 1,190.80 | $ 14,289.60 | ||
| Expenses | ||||
| Insurance (Hazard) Normal | $ 70.83 | $ 850.00 | ||
| Landscape Maintenance | $ 33.80 | $ 405.60 | ||
| Maintenance Handyman | $ 65.00 | $ 780.00 | ||
| Manager Salary/Management fee | $ 130.00 | $ 1,560.00 | ||
| Miscellaneous Expenses | $ 26.00 | $ 312.00 | ||
| Reserves | $ 80.50 | $ 966.00 | ||
| Supplies (maintenance) | $ 26.00 | $ 312.00 | ||
| Taxes (Property) | $ 198.33 | $ 2,380.00 | ||
| Total Operating Expenses | $ 630.47 | $ 7,565.60 | ||
| % of Operating Expenses to Income | 53% | |||
| Net Operating Income | $ 560.33 | $ 6,724.00 | ||
| Financing | ||||
| Purchase Price | $ 170,000.00 | |||
| Down Payment | 20% | $ 34,000.00 | ||
| Loan Amount | $ 136,000.00 | |||
| Interest Rate | 5.0% | |||
| Term of Loan | 30 | |||
| Settlement Fees | ||||
| Origination fee (Title, Title Insurance and Deed Processing Fee) | $ 1,632.00 | |||
| Discount fee | ||||
| Closing Costs and Misc Fees | $ 680.00 | |||
| Total Cash Outlay | $ 36,312.00 | |||
| The Loan | ||||
| Monthly Loan Payment (Principlal + Interest) | $ 730.00 | |||
| Monthly Payment (PITI) | $ 999.24 | |||
| Investment Analysis - Settlement fees paid by buyer which is me | ||||
| Cash Outlay (Down Payment + Settlement Fees) | $ 36,312.00 | |||
| Total Operating Income | $ 1,190.80 | $ 14,289.60 | ||
| Less: Total Operating Expenses | $ 630.47 | $ 7,565.60 | ||
| Net Operating Income | $ 560.33 | $ 6,724.00 | ||
| Less: Monthly Loan Payment (Principal & Interest) | $ 730.00 | $ 8,760.00 | ||
| Cash Flow (Monthly Loan Payment - Net operating income | $ (169.67) | $(2,036.00) | ||
| Cash on Cash ROI (Cash flow/Total Cash Outlay) | -5.6070% | |||
| Investment Analysis - Settlement Fees added into loan amount | ||||
| Cash Outlay (Down Payment + Settlement/Closing Fees) | $ 36,312.00 | |||
| Monthly | Yearly | |||
| Total Operating Income | $ 1,190.80 | $ 14,289.60 | ||
| Less: Total Operating Expenses | $ 630.47 | $ 7,565.60 | ||
| Net Operating Income | $ 560.33 | $ 6,724.00 | ||
| Less: Loan Payment (Principal & Interest) | $ 742.41 | $ 8,908.92 | ||
| Cash Flow | $ (182.08) | $ (2,184.92) | ||
| Cash on Cash ROI (Cash flow/Total Cash Outlay) | -6.0171% | |||
| Cap Rate (NOI/Purchase Price) | 3.9553% |
Most Popular Reply
#4 All Forums Contributor
- Plymouth, MI
Multiple choice Question: Why would you buy a rental property, with negative cash flow?
Answers:
A - To help the tenant pay for their rental expenses
B - To have to find a different source of income (investment) to cover the negative income on this property...but you have no money now, or in the foreseeable future, to invest with.
C - To rationalize that the property will be gaining in appreciation faster than you are losing cash per year.
D - To put yourself in a "cash poor" situation, and making that situation worse by the month.
E - To put yourself in a position where if you are in need of cash, you can always borrow the money, and as a result of the negative cash flow, need an added source of income to pay off that new debt.
F - All of the above.