Trying to find cash on cash

[Jack Srimani]

Hi,
I have checked out a SFH in one of the suburbs of Chicago. This is a 3 bedroom and two and half bath house. The house is ten years old and is a short sale. The asking rate is 125000. The rent in this area for this kind of house is 1400 dollars per month. The home is very well maintained and no work is needed for renting it out. The tax is approx 3000. The insurance is approx. 700 dollars. The renters in this area is high end ones who are willing to pay that amount of money for rent. With this scenario does the fifty percent rule apply? Does this seem to be good deal? I appreciate any help.
Thanks.

[Jon Holdman]

This a mediocre rental regardless of the area, as a pure rental. Now perhaps there's something else going on, but as a rental, if this is the best you an do, don't buy rentals in this area.

First the payment part. I'll assume 25% down at 6% for 30 years.

Price: $125,000
Down:$31,250 (ignoring costs, about another $4000)
Payment: $562.08 (P&I only)

Now the rent side:
Rent: $1400
50% rule: $700 (vacancy, capital, expenses)
NOI: $700
Cash flow: $137.92/month
Cash flow: $1655.06/year
Cash on cash return: 5.3%

Now, you might say "that meets the $100/month goal". Only because of all the cash you have into the deal. Assume 0% down to evaluate the deal by iteself:

P&I payment: $749.44
Cash flow: $-49.44

The $187.36 difference is because of the cash you have invested. The property itself is a loser.