Checking my math on 1st deal for turnkey near Little Rock, AR

[Andrew B.]

Hi all,

I am trying to make sure my calculations with my due diligence are accurate upon selecting my first deal for a SFR rental that would be a newly renovated turnkey managed by a PM. I recently fed my numbers through the BP Rental Property Calculator, being one of the first few times I've familiarized myself with it. My goal is monthly cash-flow, and from what I've been reading, I should realistically pursue a minimum ~8-12% cash-on-cash return with a 20% down purchase.

Are the numbers below feasible and is my Cash-on-Cash Return calculation below accurate? I think this was a good exercise to try on the BP Calculator either way.

PROPERTY INFO

4 BR, 2.5 BA near Little Rock, AR

$31,980 cash purchase (20% down, 30-year fixed)

Property valued at $159.9K

INCOME:

- Rent: $1,295/mo (Year 1), with $50 monthly increase in Year 2

EXPENSES (Total $1,230.61):
- P & I (30-year fixed at 4.75%) $667.29/mo
- Property Management (10%): $129.50/mo
- Property Taxes: $163.67/mo
- Homeowners Insurance: $50.40/mo

- Repairs/CapEx (10%): $129.50

- Vacancy (7%) = $90.65

RETURNS:

- CoC = 2.42% @ $64.39/mo

QUESTIONS:

1. Should I include closing costs as part of cash needed (putting 20% down of purchase price) when calculating Cash-on-Cash Return?

2. Since the property management company charges first month’s rent placement fee for a new tenant, how should I factor this in with my Cash-on-Cash return - do I also lump it into cash needed?

3. Am I missing any critical expenses to add above?

It sounds I should pass on this property if my math is correct? Given a ~2% CoC return is not enticing or sustainable given my goal is monthly cashflow. Or are my estimates too conservative?

Thanks for any input! 

[Caleb Heimsoth]

Yes include closing costs in cash on cash return. Yes pass on this property as it’s way to low in cash flow. You’re not missing any major expenses