Need Deal Analysis Help On First Property

[Gavin Delmas]

Here is the down and dirty of my first deal that has landed in front of me.  My Father in Law purchased a Condo for $145,000 two years ago.  The condos in the complex are now selling for $165,000 in much worse condition.  Since he knows my wife and I are trying to break into real Estate Investing he has offered to sell us the condo for $123,500 and is going to consider it as an early inheritance.  He does not want to do seller financing so I will have to do a conventional loan with 25% down at a 4.17% interest rate which would make the loan amount for $92,625.  Currently the condo rents for $950.00 which is way below what he could be getting for it.  My friend who manages some of the condos says I could get $1200 for rent at the top end and $1100 for sure.

The break down is this:

HOA 200.00

Insurance 30

Vacancy 7%

Maintenace & Repair 7%

CAP/EX 7%

Taxes $1500 Annually

Getting $1200 a month in rent would produce $141.67 cash flow a month making it a 5.76% Cap Rate and a 4.88% cash on cash return. However at the $950 a month rent it would be -55.83 cash flow. I don't know how to look at this? the Cash on Cash return is not good but we are basically getting $40,000 in equity given to us. I used the 7% rates instead of 10% because there is a HOA involved that I am assuming will have some of the stuff covered. Any help on how to view this purchase and whether or not my numbers are right would be greatly appreciated. Is this something you would do? Am I missing anything? Thanks!