Getting Discouraged by the Numbers

[Joanna Gossett]

We're getting closer to pulling the trigger on our first buy/hold deal and as I run the numbers with multiple financing scenarios, they just don't look right. Once I factor in the costs of financing/investment basis everything is showing as a negative cash flow or a very low cash on cash return (under 2%). 

We are looking at a property that will be sold at an auction in a few weeks. Bidding will start at $55K. Recently appraised for $103K. 3 BR/2 BA, 1500 SF. With no rehab, should rent for $1200/month (conservative estimate) with a 7% vacancy. Taxes $2200/year. HOA $300/year. Insurance $2000/year (complete guess).

Looking at multiple types of conventional financing, 5/1 ARM, 7/1 ARM, 15 year fixed- all 20% down based on purchase price of $75k or $100K and after closing costs, etc. none of it makes sense. We aren't necessarily looking for huge cash flow initially- we want to have a positive return and get the loan paid off quickly, looking at a long term investment/rental.

What am I missing? Or is there just no way that this is going to be a good deal? 

[Alexander Felice]

I think the unit numbers look GREAT, the other mess can be fixed.

1. $1200 on $50k is FANTASTIC SPREAD

2.Taxes are higher than I would expect, double check this figure.

3. Insurance should be closer to $700 for the year

4. Financing is simple, go a 30 year. This is debated all the time so you can use the search function to find previous discussions. Both short term mortgages and paying off houses provides constraints, but very little benefit.