Income vs Equity

[Tony Hernandez]

I got a call from a seller. Here are the numbers.

• ARV: $270k
• Repairs: Paint & carpet. Year built is 1999 and has new roof and fence.
• Rental income: $1900 monthly (is average for market)
• Monthly Expenses: $496 for property taxes & $300 for insurance

Using BP calculator for an all cash deal I get:

• Purchase Price: 100k
• Cash on Cash ROI: 7.56%
• Monthly cash flow: $629.83 (assuming 4% vacancy, 5% repairs, 6% cap expend, 10% managment)

So from this I see that an all cash deal would yield great monthly cash flow with an OK cash on cash ROI. However, in order to get that number the purchase price is $170k less than if the owner puts a sign in the yard.

When I look at doing this deal with conventional financing I get:

• PP: $115k
• Cash needed: $30k
• Cash on Cash ROI: 6.76%
• Monthly cash flow: $166.82(same assumptions)

I can tweak this down to get a higher purchase price and keep cash flow over $100/month but then my Cash on Cash ROI goes to CD levels.

So my question is, is there a deal to be had for a buy & hold investor when the rents do not justify the market price? What would you offer this Seller?