These investors would then turn around and sell the property to a retail buyer right before the balloon payment comes due.

Krystal Adeoye You need to understand that "comp.s" mean properties in Comparable condition, size and bed/bath.  

Here are the details.Asking Price $275,0008 Unitsbuilt in 1987All are 2 bed/1bathRent is $500/month per unitOwner pays water/sewer/trashFinancials:They were not provided in the listing, so I am estimating on some costs.Down payment $68,750Closings Costs $10,000 (estimate)Mortgage Estimate $1361/month (estimated 5 year balloon, 20 year amortization, 5% interest, 25% down payment)Annual Gross Rental Income $48,000 ($500/month * 8 units)Vacancy Loss $4800 (10% estimate)Adjusted Gross Income $43,200Property Taxes $3018 (2013 actual amount)Insurance $1500 (estimate)Maintenance $4320 (10% Adjusted Gross Income)Water/Utilities $5760 (estimate $60/month per unit)Property Management $4320 (10% Adjusted Gross Income)Net Operating Income $24,282Operating Expenses $18,918Annual Income $12,468Cash on Cash Return 15.83%Am I underestimating key costs here?

So you are not flipping the house for retail sale but buying and rehabbing to get rent ready and hold long term correct??

Here are the details on the property:Beds 4 Bed Baths 3 Full, 1 Half Bath House Size 4,530 Sq Ft Lot Size 1.3 Acres Year Built 2000 The property is not listed on the MLS.

Last year he made 72k where the average retail store manager in the area makes 36k a year.    

I looked at a property, rented section 8, that had a 3 bed at $1,250.

Typing this on my right before bed did not help my writing skills ;)

That guy fixed it up for $20k and ended up selling retail for $170k !!!!! 

@Chris Duzan A buddy has 130 beds brings in 71K mo after expenses 50K.