Mimi,
Throughout the United States, operating expenses run 45% to 50% of the gross rents (although you’ve apparently alloted that amount for only taxes and insurance). There are MANY expenses in addition to taxes and insurance, such as advertising, vacancies, management (even if you do it yourself), maintenance, utilities (if only during vacancies), legal fees, evictions, capital expenses (not technically an operating expense), etc, etc, etc.
If the operating expenses are 50% of the gross rents (assuming your $1,000 for taxes and insurance is wrong), then this is how this deal looks to me:
Gross rents: $2,000
Operating Expenses: $1,000
NOI: $1,000
Since you are paying cash, your apparent cash flow is $1,000 per month, however you haven’t accounted for the cost of the $215,000 that you have in the deal. There is a cost to that money, whether you’re using your own money or are borrowing the money. If you were borrowing the money at 7%, the mortgage payment would be $1,430 per month, meaning that you would lose $430 per month. That is why I said that this deal was a loser. Buying the cash flow by paying cash does not change the quality of the deal.
However, you are correct that if you pay cash, you shouldn’t be paying cash out of your pocket each month to support the property. In fact, your cash on cash return would be about 5.6%. The big question is whether that’s an adequate return on your money considering the risk involved? Personally, I wouldn’t do it.
Good Luck,
Mike