Posted by ray@lcorn on November 05, 2000 at 22:37:19:
Great question with an easy answer.
Assuming the terms, income and expense stated, you will be spending $12,500 down (plus the cost of a new septic field ~$2500?), and receive net operating income of ~$6,000. Annual debt service on $37,500, 15 yrs @10.5% would equal ~$4,975. That leaves net cash flow of ~$1,025, or an 8.2% return on the down payment funds, without accounting for the new septic field.
If you’re only making 50% returns on your Lonnie deals, to replace it would require a cap rate of 22.4%. With an NOI of $6,000, that means it’s worth ~$26,785, less deferred maintenance expenses.
Tell the realtor to go take a course in appraisal before they do real damage to the sellers. (just kidding, but the seller should know that is way overpriced.)