You know many investors are snapping up REO (bank owned) properties. But why?

You can buy any number of nice homes for about $400,000. These will be 3+2 or 4+2 homes,  about 1,500 or 1,600 square feet in good family neighborhoods. Assume for now you pay all cash. Let’s run some numbers:

Income – $2,000 a month gross x 12 months = $24,000

Taxes – about $400 a month x 12 months  =  <$4,800>

Insurance  =  <$750>

Vacancy (5%)  =  <$1,200>

Maintenance (5% budget per year)  =  <$1,200>

Approximate Net Operating Income (NOI)  =  $16,000  (4% cash on cash return)

But are investors buying properties today because of cash flow? NO! They are making the assumption prices will come back over the long term and are looking for future appreciation. That’s why properties look so good today to investors!