Analyze This

[Tony Thompson]

Duplex

Asking Price: $150,000

Gross Potential Rent: $1,900/month ($950/unit)

Taxes: $263/month

I have been pre approved for convential loan assuming 80% ltv @ 5.875% interest, 30 years.

Here's the catch: I only have $13,000 in cash. My parents have loaned me $18,000 for the down payment @ 5% interest for 10 years.

I have been stumped on calculating ROI for this property... I would have to somehow average out the two loans. Help.

[Jon Holdman]

Nothing complicated involved. The answer is 1.6% cash on cash return.

If you only have $13K and pay $150K and a 20% down payment, you need more like $21K from the parents. You'll have $3-4K in closing costs, loan origination fees and prepaid expenses (taxes, insurance), so you'll need about $33-34K

Rent: $1900
Expenses: $950 (50% rule)
NOI: $950
Payment 1: $710 ($120K, 5.875%, 30 years)
Payment 2: $223 ($21K, 5%, 10 years)
Cash flow: $17/month, $209/year
Cash on cash return: 1.6% ($209/ $13K)

You're paying too much. Using your pretty nice interest rate of 5.875%, the most you can afford to pay is about $126K

Payment: $745 ($126K, 5.875%, 30 years):
Cash flow: $205, $103/unit

With that price, you can get by with about $15K from the parents. Now it looks like:
Payment 1: $596
Payment 2: $159
Cash flow: $195/month, $2,336/year
Cash on cash return: 18%