Condo Deal - is my math right?

[Jimmy Mooney]

Working on my first deal to dip my toe in the REI world. I've done a lot of reading and lurking here and I think I've identified a deal with potential.

Caveat: these numbers could be completely wrong or a very bad deal (VBD). If you feel that way, speak up! You won't hurt my feelings. This is my first time so I'd like to learn what I might have over- or under-estimated.

Condo is a 2/1, 767 sqft, located in Arizona. Built in 1981, original owner is selling. Used rarely as a winter home by the owners. It's in a good neighborhood and near a university which makes for better rental potential. Average rents in the area are between 700-900/mo. HOA covers a lot of the maintenance cost but it could use a paint job inside, new kitchen appliances (stove, fridge, DW, vent hood), new window coverings, paint on the kitchen cabinets and new flooring to replace dated carpet/linoleum (again, original 1981 owners). Biggest community amenity is a pool (big deal in AZ)

One thing to note below: I could probably forego the appliance replacement in the kitchen until year two. I am estimating $1500 to replace all three major appliances in the kitchen. This changes my CoC and cash flow pretty significantly in year one. I'm including them as a 'worst-case' if I feel that it just absolutely will prevent me from getting a renter.

Initial Costs

Cost is $75,000 putting 20% down.

Closing Costs: 1% of purchase price

Repairs: $2,500

Annual Expenses:

P+I: $60,000 @ 4.5%, 30 year conventional = $3,648

Taxes: 1.5% = ~$1,125

Insurance: ~$500/yr

HOA: $1,440 (covers exterior maintenance, landscaping, common areas (pool, parking), trash and some other smaller)

Property Management (10%), Repairs/Maintenance (3% - HOA covers much), Capital Expense (10%), Vacancy rate (7%): $3,500

Income:

Rent: $9,600 @ $800/mo to one renter. If rented to students could get $12,000 @ $500/mo per room

For calculations, I'll assume $800/mo

Maths:

NOI: $4,800

CoC: 5%

ROI: 11.1%

Cap Rate: 6.4%

Cash Flow (year 1): $-1,500 (due to repair costs)

Cash Flow (year 2): $1,594

Exit Plan:

Assuming a modest 2% appreciation, 4% annual rent increase and a 10% vacancy rate I calculate after 5 years I could sell the property and have a 62% overall ROI. My plan is to hold onto it for more like 10-15 years.

Worst case, I calculate I would break-even on selling the property after 3 years of ownership and rental income should I need to unload it.