Help! I'm bad at math or doing something wrong

[Rick L.]

Hello BP,

I have two properties and looking to purchase a third. I keep doing the numbers and feel like the numbers are showing bad deals, but it doesn't make sense to me how they can be. 

I know I need to re-read some of the books, etc. but advice will be greatly appreciated! Am I misreading this, and it's actually a good deal? Am I improperly estimating the expense and income increases that's affecting profitability? Looking at the numbers CAPEX and repairs add a huge amount to the monthly expenses.

For instance, this third deal:

Monthly Income: $1,100

Monthly Expenses $1,134.14

Monthly Cashflow: -$34.14

Pro Forma Cap: 5.22%

NOI: $5,215

Total Cash Needed: $11,050

Cash on Cash ROI: -3.71%

Purchase Cap Rate: $5.73

Sale Price: $91,000

Closing Costs: $2,500

Renovation Costs: $4,550 (5%)

TOTAL PROJECT COSTS: $98,050

Down Payment: $4,550 (5%)

Loan Amount: $87,314.5

Loan Points: $864.5 (1%)

Amortized: 30 years

Interest Rate: 5%

P&I: 468.72

Total Cash Needed: $11,050

Property Taxes: $2,184/yr

2% Rule: 1.13%

Initial Equity: $12,685.50

Gross Rent Multiplier: 6.89

Debt Coverage Ratio: 0.93

Expense Increase: 4%/yr

Income Increase: 5%/yr

Property Value Increase: 4%/yr

Cash on Cash ROI: YR1 (-3.71%) YR2 (-0.63%) YR5 (2.64%) YR10 (9.76%) YR15 (31.56%)

Annualized Total Return: YR1 (2.48%) YR2 (22.27%) YR5 (26.37%) YR10 (26.47%) YR15 (22.20%)

Total Profit if sold: YR1 ($274) YR2 ($5,469) YR5 ($11,251) YR10 ($24,701) YR15 ($70,982)

Expenses:

HOA: $82

Insurance: $66

Taxes: $182

MTG: $468.72 (@5%)

TOTAL: $798.72

Vacancy: $110 (10%)

CAPEX: $190/mo (~2.5%)

Repairs & Maint: $380/mo (5%)

TOTAL EXPENSES: $1,478.72

These expenses are different than the $1,134.14 mentioned early on. That number was used and still gave a negative ROI, etc. meaning the current numbers you see just above make the picture even worse.

Please advise, and thanks!

Rick