Cash Flow Vs. Appreciation

Our most recent deal brought me to a small town called Excelsior Springs, Missouri. Located just outside Kansas City, Missouri. It was a deal that my partner had actually found that had just posted to the MLS. Asking price was $85,000 for a heavily updated duplex. Keep in mind it is 100 year old building but had a nearly flawless inspection, we didn't know this at the time of course. It was bringing in $1,300 per month in gross income. Just based off those numbers we knew it would be a cash flow cow. The only problem was that Excelsior Springs had barely grown in population, ever! The towns largest growth was in the 1970's and that was a 3.8% populations growth through that decade. Because of this, we knew appreciation was not going to be on our side. We decided that the cash flow would be worth it because in less than five years we would have 100% cash on cash ROI. Here are the details of the opportunity:

PP-85,000

DP-17,000

Mortgage (PITI)-620

Gross Income/year- 15,840

Projected Operating Expense Loss-

-10% Vacancy

-5% Maintenance

-5% Capital Expenses

-1,800 Sewer, Water and Trash

-786 Taxes

-1200 Insurance

NOI- 8,886

Cap Rate-10.5%

Net Yearly Cash Flow-3,432

Yearly Cash on Cash ROI-20%

These are conservative numbers and actually expect this property to perform closer to 30% Cash on Cash. Our plan for the property is to just let it cash flow and refinance in 5 years to pull out what we can and convert that towards a larger multi. I am interested to hear all critiques and comments. Let's learn and grow together! Thanks for taking the time to read this article.