We are looking at purchasing a rental property. The property is in a fairly popular area, close to schools, downtown, rec center. It's not a beautiful home, but split level, 3-4 bedrooms, updated bathrooms, fenced yard. They are asking 259,000, so maybe we could scoop for 245K as it is a foreclosure. Vacancy rate here is under 2%. We are thinking we could rent out for $1600 (utilities not included) maybe more, because vacancies are very tight for family homes and the area has a lot of short term employees. I don't think this would take much in the way of cash output to get it up on the market. Property taxes are $2800, insurance would be about $800 and there are probably some miscellaneous costs as well.
We have 10K in cash and the rest of the 20% down payment would come from LOC. We would be looking long term, essentially creating an income source for 25 years down the road.
So like a good little mustachian I ran the #s through a rental property calculator...2 in fact, and I'm not sure if this would be good or not. This is showing that I would be in the negative cash balance for the first 3 years to pay off my cash investment. But it is showing my average annual rate as 17.25% I don't think this is right??? I must have put in a number wrong I think. Can someone review this and tell me if my calculations are completely out to lunch.