Yes, if you think you will need to keep 30% equity on a refinance, then it's 70% of the ARV. Overall it looks like an interesting prospect, but I'd probably go into more detail on the expenses before buying. Instead of just doing the 50% of income assumption. Go ahead and add up the annual cost of property taxes (assessed at the purchase price, not whatever the current appraisal value is), insurance, any utilities you have to pay for. Check the age of the roof, HVAC, and water heater and factor in their repair cost in future years, replacing the roof and HVAC when they each reach 15 years old and water heater at 10. Also, figure replacing the flooring every 5 years. This is based on wear and tear damage that you can't charge to their security deposit. Sometimes things can look like they are cash flow positive but then in year 3 or whatever, the entire investment actually becomes cash flow negative because of the big ticket repairs. Also, a 5% vacancy factor seems a little low. It can take several weeks to do a make ready and then 30 days best case scenario to lease out the property - so 45 days total, which comes to 12.5% per year. But at first glance, this property may be a good investment long-term.
