Need Smart People to Take a Stab at This Analysis!

[Brandon Hall]

Hey Everyone,

I found a house and would like some help with the analysis. I believe I am on the right track but I know there are some brilliant analysts on this site so please jump in an help!

The house is less than a tenth of a mile from central campus of a university with enrollment of 29,000 students. It is also less than a mile from the downtown area featuring bars and restaurants. The area experiences high rental demand and around 5% of homes in the area are owner occupied.

Asking Price: $337,900

5 beds, 3.5 baths, 3,743 sqft, built in 1953, heat pump, detached garage, new roof in 2007, sold in 2007 for $335,000.

Comps are valued at around $300k according to Zillow (I don't have access to MLS)

Monthly Rents: $2,500 - 3,000; Annual Average Gross: $33,000 rent

Property Taxes: $3,700

Insurance:$750

Maintenance & Repairs: $9,500

Other variable costs: 6% of rents

Vacancy Rate: 3% (College town - generally have 5-15 days before new renters move in)

Downpayment: 25%

Years: 30

Rate 4.35%

I am roughly estimating $5,000 in improvements though I will get a contractor to provide me with his/her estimate.

At the purchase price of $337,500, I am getting a cap rate of 5%, cash ROI of less than 1%, and an annual cash flow of $710.

Obviously these are horrible returns. At a purchase price of $290,000, I am still only seeing a cap rate of 6% and annual cash flow of $3,300 which is still not where I want it to be.

So is this market just bad for investing? I doubt I'd be able to get it below $310,000. How can someone purchase this house and be happy with those numbers? Did I do something wrong?