I am working with a realtor to find an out-of-state multifamily property. I have obtained a home equity line of credit for 2.99% to use for a downpayment. And have been pre-approved for a conventional loan at 3.67% to finance the rest.
She has located a property which she feels would be a good investment. She writes: I calculated $236000 @ 5.5%, 30 yr. term is $1340/mo P&I, which annually is $16,080, less $7,000 expenses plus $3500 for property manager nets $26,580. The income 34,650, this will bring you an estimated $8,000 positive cash flow before income tax. This generates approx. 10% cap rate, before property manager and P&I.
However her expenses of $7,000 doesn't include property management, future monies set aside for maintenance, repairs, capital expenses and future selling & closing costs -- data the Bigger Pocket Rental Property calculator requires. As I see it, these would be on top of the $7,000.
When I entered those costs into the calculator, I came up with a cashflow number of $471.62 or $5700/year. A bit below the advised $200/unit minimum.
When I pointed this out to her, her response was: "I feel you may be over analyzing the whole thing. You should be considering the pre tax return on investment.. You are borrowing money for 3% and making 10%"
I'm a bit perplexed and confused. Am I over-thinking this?
