Originally posted by Thomas Williamson: plus now we avoid the 3.8% healthcare tax as well that will hit ALL real estate investors, unless you or your spouse are full time.Nice job on the houses, just wanted to clarify this item.My read on the 3.8% medicare surtax is that it only applies if your Adjusted Gross Income exceeds $250K for a married couple ($200K for a single), so it does not impact ALL real estate investors, just those with high income.The RE Professional status also permits you to deduct ALL tax losses against your other income, so it's not subject to the $25K loss limit that most RE investors face when deducting against their active income (and even that is subject to phaseout once other income exceeds $100K).

So this is what I came up with: Purchase price/ Value $390,000 Down payment $13,600 Loan amount $376,400$376,400 for 30yrs @ 3.5 apr P&I $1690Rents: $40320 with 5% vacant rate =38304Real Estate Taxes$3,600 Insurance $1500 Managementself manageSnow/lawnselfUtilities1200Repair/maint 2200 (new construction )Gross operating income $38,304 Less: operating expenses $8,600 Net operating income $29,704 Less: annual debt service $19,657 Cash flow before tax $10,047Net operating income $29,704 Less: interest $12,120 Less: depreciation (~4%)$14,182 Taxable income $3,402 * tax bracket (fed)33%Tax payment / (savings)$1,123Cap 7.62Cash on cash 73.87%Is this right?

Current monthly income is $4040, Current GRM is at 8.16, CAP rate is 6.66% with a 5% vacancy and expenses at approx. 43% of Effective Gross Income.Is there more info needed?

That makes your P&I $1757 a month.Given you're going to self manage, I'll peg expenses, vacancy, and capital at 36% of gross scheduled rent.

Let me expand on @Jeremy Cyrier 's very good advice (and I am SO glad that someone is saying cash-on-cash return is inadequate because it fails to take time value of money into account)In simplest terms, you need to project your cash flows over a reasonable holding period, and then perform an internal rate of return calc.To estimate your year one cash flow, start with the gross rent and subtract an allowance for potential vacancy and credit loss (at least 3% but probably more since one lost month's rent in a SFR is 8%).

Rent yields drop precipitously as prices go over $100K in most places.Also, regarding expense assumptions on the expensive homes: taxes and insurance will be a much higher percentage of gross rent, so I think this essentially offsets the other issues.

1) Proof of funds - bank statement for the past 3 months showing a bank balance of a minimum of 6 times the monthly rent. 2) Proof of Gross Annual Income - Household annual gross income must be at least 3 times the annual rent.

I welcome any comments or suggestions since this completely new territory for me.Additional info: business is located in TN, start-up capital is relatively small (~30k), and a previous restaurant at the location reportedly had gross sales in excess of $1M but failed due to poor management.

Correct me if I am wrong but I feel like for this investment to be worth my while, I need to get the a lower price and interest rate. ..."1% rule" = purchase price of 100 times monthly rent; 180 times is like a 0.56% and that is a recipe for disaster.Depending on the rent you gross, 1% rule properties may be a break-even or losing proposition in the long run, especially if you are financing the acquisition.

Maybe you can spell out expenses and gross income so we can gauge the true value of your Net that will help with more input on what to work on for your next acquisition.