Calculations from an actual investment purchase

In this third and final part of Real Estate Investing Basics, we will evaluate an actual buy and hold deal we purchased. The property is a 4 bedroom home in Oceanside, CA, 92056. It was real estate owned after a foreclosure and had been sitting on the market for 240 days. It was purchased in January 2012 for $330,000.

The most critical metrics we used when we evaluated this deal:

  • Cash flow = $367 / month. We try to get a minimum of $200 per unit.
  • Capitalization Rate = 5.5%. For a nice single-family residence (SFR) in Oceanside, I accept CAP Rates greater than 5%.
  • Cash on Cash Returns = 5.8%. I compare this number to what I could get in the stock market or from another investment. For a San Diego SFR I accept greater than 5%. I may be able to get more from trust deed investing or stocks, but I like that someone else is paying down my mortgage, I am leveraging my money with a loan, I am getting tax benefits, and I have control of my asset.

The actual detailed numbers to get the calculations:


Download the Excel spreadsheet to do your own calculations.

Real estate is a great investment opportunity and with the right research and property managers, you can do it part time and passively with little stress! If you are interested in self-improvement, passive income, financial freedom, entrepreneurism, or real estate investing, take a look at a few useful resources that I have noted below.

Beginning books:

  • Rich Dad Poor Dad by Robert Kiyosaki
    • I lovingly refer to this book as the gateway drug for people who are interested in investing or working for themselves. If this book doesn’t get you psyched up to achieve financial freedom I don’t know what will!
  • The 4-Hour Work-Week By Timothy Ferriss
    • This book is good for efficiency enthusiasts or entrepreneurs who want to optimize their lives or businesses.

Next level books:

  • How to Win Friends and Influence People by Dale Carnegie
    • This book is great for anyone who interacts with people and wants to get better at it. It can help a lot in your personal relationships and teach you how to get people to like and trust you (which helps immensely with sales).
  • The Millionaire Real Estate Investor by Gary Keller
    • This book was written by the co-founder of Keller Williams. It has slightly more technical investing information (compared to Rich Dad Poor Dad) and is still is very inspirational.
  • Cashflow Quadrant by Robert Kiyosaki
    • Another inspiring book that is written for people who want to escape a 9 to 5 job and move into a life where they work for themselves as an investor, entrepreneur, and/or business owner!

Online resources:

  • BiggerPockets.com
    • An online community for real estate investors, professionals, landlords, property managers, etc.
  • NOLO.com
    • A good website for general information about starting a business, investing, tax tips, etc.
  • MortgageCalculator.org
    • A site to help you calculate monthly mortgage payments.