Looking to get my first investment property. Estimated my cash on cash returns. Any experienced small time investment property investors have input?
Here's what I got: Gross rental income: 12000/year.
Expenses: Insurance: 1260/year Vacancy: 1000/year Taxes: 1715/year Maintenance/Repairs: Using 50% rule. Edit: this 50% is just for repairs/maintenance only. It's not the standars 50% rule investers use to keep all operating expenses under 50% of gross income (see below). Loan payment: 2520/year (40k total purchase) Total: 6,500.
Net income: 12,000-6500/year = 5,500/year 50% rule: 2750 to savings (maintenance/repairs) and add that to total expenses to bring them up to 9250/year. Other 2750 profit in my pocket = new net income.
Total investment: 11,125 (Includes 20% down, closing, inspection, appraisal)
Cash on cash return: 2750/11125 = 25%/year.
I think this number is fairly conservative as the 50% maintenance rule will likely give me more than enough standby money on the side.
Using the 1% maintenance rule: (1% of rental income to repairs/maintenance) yields a cash on cash return for the year of 39%, but I am happy enough with the 50% maintenance rule returns and money set aside for repairs, as I do want to do some cosmetic updating of both apartments within next 2-3 years.
What do you think of these numbers? Are they good? Are they bad?
I do want to add to it that I will actually be taking out a home equity loan to finance the property. I will not have to put the 20% down, though I do plan on paying appraisal/inspection/closing fees with cash. This lowers my total investment tremendously and yields cash on cash returns for the year closer to 88% using the 50% rule for maintenance. New total investment becomes only 3125. Net income of 2750/3125 = cash on cssh return of 88%.
What is your view on doing this? I only supplied the cash on cash returns with the 20% down factored in so you could get an idea of what a return looks like how I'm assuming most people finance rental properties, with a seperate loan for each property, so you could compare apples to apples.
Submitted March 04, 2019 at 09:51AM by SouthernTierNYer https://ift.tt/2NILBqC
