Earlier this month, I blogged about how February was a month of “getting back into the game” after a break I took since purchasing house #2 late last year. Well, I’ve been doing a bunch of networking and studying different markets and potential investments. In the end, I decided on the next property I want to purchase and signed the contract on this house today!
The house is located in Memphis, TN and is priced at $54,700. The yearly net operating income is $6,127, which means the cap rate is 11%. The rest of the numbers are:
| Item | Amount |
|---|---|
| Rent | $675.00 |
| Insurance | $26.50 |
| Taxes | $70.41 |
| Management | -$67.50 |
| Net Operating Income | $510.59 |
Similar to house #2, with this purchase I’ll be paying for 40% of the property and using a loan for the other 60%. The loan terms are identical to the loan I took for house #2: 10 year mortgage with a 7.25% interest rate. The monthly mortgage payment comes out to $385, bringing the monthly cash flow to $125.59.
| Item | Amount |
|---|---|
| Rent | $675.00 |
| Insurance | $26.50 |
| Taxes | $70.41 |
| Management | -$67.50 |
| Net Operating Income | $510.59 |
| Debt Services | -$385.00 |
| Monthly cash flow | $125.59 |
With these numbers, my cash on cash return will be around 6% depending on closing costs, and around 4% if we factor in vacancy and maintenance. For those of you who are looking at that number and not understanding how this could be a good investment, take a look at the last paragraph in my post about house #2.
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