If someone put down $100k cash and got a mortgage for the remainder ($200-250/mo), they’d be cash-flowing decently without much risk of being underwater. If they couldn’t get a small mortgage, a $100k loan would still allow for cash flow.
Try getting 5% or more return from a bank right now.[/quote]Very optimistic calculation. What about management cost (if you don’t want to manage it yourself), vacancy, maintenance? Then there’s are those who don’t want to put all $140k in 1 property or if they don’t have all $140k and they have to get a mortgage. All of those will eat away the 5.87% cap rate very quickly.
The OP only have $100k to invest, so you have to subtract $200/month due to 30 years mortgage on the remaining $40k. That alone will bring the cap rate down to 4.1%. If you add in vacancy & maintenance @ ~$100/month (I think this might be on the low side), your cap rate goes down to 3.3%. Add in $100/month for property management and you’re looking @ cap rate of 2.4%. @ that kind of return, you can get 5-7 years CD that pays you about that much without any of the potential headache that might arise being a landlord. Too much risk for too little return IMHO.
