Day 3 (Saturday 5/16/15)While the walls were being demolished, we started with the roof which was really in bad shape.

But that depends on if it is in decent shape. 

I have private money lending at 6% that will fund the rehab and I want to ensure that I am calculating this correctly.Rent - Mortgage - Insurance - Tax - Vacancy(10%) - Maintenance(10%)1350 - 440 - 50 - 210 - 135 - 135 = + 380Cash on Cash return (initial):380x12 = 4,560 / 40,000 (down-payment + rehab) = 11.4%Cash on Cash return (after rehab and appraised at 120k) New Cash Flow using refinancing with 80/20 conventional:1350 - 530 - 50 - 210 - 135 - 135 = +290290x12 = 3480 (per year)Total Cash invested:Down Payment + Interest to Private Lender + Cost to refinance (4% of remaining principal)   24,000+1,200+ 3850 = 29,050New Cash on Cash: 3480 / 29050 = 11.9%Major concerns are not knowing which way the area is trending and not getting any sort of discount on the rehab.Any input would be greatly appreciated.

lets pay down all that debt and be "risk" freeValue = 100KLoan = 0Equity = 100KROE = $3.5K/100K = 3.5%At least I'm beating the nominal 3% inflation rate...A disclaimer, I'm leaving out a lot of important variables for simplicity of math to help uncover the trend I was trying to point out.  

If everything is in the shape it was in when you bought the house, I'd consider returning a portion of his deposit (1/4 to 1/2) just to get him out without having to go to court.  

But at the volume you're doing, that may not even be worth it.I don't keep up with the trends in wholesaling direct mail practices, but there's a general axiom in direct mail saying that it does you no good to save on postage at the expense of getting your pieces opened.

Taxes are high of course due to lack of business; I'm not sure what the trend is now, though, i.e., if business is growing.

One house is 4br/2.5 ba priced at $79k and it appears to be in immaculate shape.

I have heard about grandma houses (houses in good shape but have not been updated in years) and i know they are supposedly good investments.

There are a lot of desperate people out there in bad financial shape, that's why he's offering to do it.