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The First Class Investment Review: A Hypothetical Rental Acquisition
HYPOTHETICAL EDUCATIONAL EXAMPLE — prepared October 25, 2026.
No address, listing, seller, client or achieved transaction is represented. The rent and costs below are modeling assumptions, not verified local market figures.
What cash goes into the purchase?
Purchase price: $250,000.00. Closing costs: $5,000.00. Initial rehabilitation: $10,000.00. Total initial cash invested: $265,000.00.
This example assumes an all-cash purchase. It includes no debt service, income tax, depreciation, appreciation or sale proceeds.
Change the assumptions. Revisit the decision.
The base case assumes monthly rent of $1,850.00 and 5% vacancy. The downside case uses $1,665.00 monthly rent and 8% vacancy, with higher taxes, insurance and repair allowances.
On a small screen, swipe the table horizontally to compare both scenarios.
Annual item | Base case | Downside case |
Scheduled rent | $22,200.00 | $19,980.00 |
Vacancy allowance | $1,110.00 | $1,598.40 |
Effective gross income | $21,090.00 | $18,381.60 |
Property taxes | $2,400.00 | $2,640.00 |
Insurance | $1,500.00 | $1,800.00 |
HOA | $0.00 | $0.00 |
Management | $1,687.20 | $1,470.53 |
Repairs and maintenance | $1,110.00 | $1,398.60 |
Owner-paid utilities | $240.00 | $240.00 |
Annualized leasing | $333.33 | $333.33 |
Annualized turnover | $200.00 | $200.00 |
Annualized lease renewals | $133.33 | $133.33 |
Operating expenses | $7,603.87 | $8,215.79 |
Net operating income | $13,486.13 | $10,165.81 |
Separate capital reserve | $1,000.00 | $1,000.00 |
Cash flow after reserve | $12,486.13 | $9,165.81 |
Cap rate on purchase price | 5.39% | 4.07% |
Cash-on-cash after reserve | 4.71% | 3.46% |
Different measures. Different questions.
NOI equals effective gross income less operating expenses. It excludes financing, income tax, depreciation, acquisition costs, initial rehabilitation and the separately displayed capital replacement reserve.
Cap rate equals annual NOI divided by the hypothetical purchase price. It does not measure the investor's total return.
Cash-on-cash equals annual cash flow after the displayed replacement reserve and any debt service divided by total cash invested. This example assumes an all-cash purchase, so there is no debt service.
Leasing assumes a $1,000 cost once every three years, allocated at $333.33 annually. Turnover assumes $600 once every three years, allocated at $200 annually. Actual cash outlays occur unevenly.
Management is modeled at 8% of collected rent in both cases. The calculation is an expense assumption; actual service fees and scope are governed by the applicable agreement.
The downside case reduces rent by 10%, increases vacancy to 8%, increases taxes by 10% and insurance by 20%, and increases repairs to 7% of scheduled rent. It is a sensitivity test, not a worst-case scenario.
An additional $5,000 capital expense in the downside year would reduce the modeled cash flow after reserve to $4,165.81, about 1.57% of total initial cash invested, before income tax.
Amounts are calculated without intermediate rounding. Displayed line items may differ by a cent from displayed totals.
Lease renewal fees are modeled at $200 for each of two annual renewals during a three-year tenancy, allocated at $133.33 per year. Actual leasing and renewal terms may differ.
What would we verify on a real property?
Comparable sales: identify source, date, status, location, size, property type, condition and material differences. Active asking prices are not closed sale evidence.
Rent comparables: date and source each comparable; distinguish advertised rent from verified achieved rent, concessions, lease term and utility responsibilities.
Do not invent comparable properties for this hypothetical example. No actual sale or rent comparables were used, and $1,850 is not a local rent opinion.
Verify taxes and potential reassessment; obtain property-specific insurance quotes including relevant flood, wind or vacancy coverage.
Read HOA documents, rental caps, lease restrictions, assessments and local requirements. Confirm permitted use and applicable rental or occupancy restrictions with appropriate professionals.
Obtain inspections and specialist evaluations as appropriate; examine roof, systems, moisture, deferred maintenance and replacement timing.
Review existing leases, verified rent rolls, income, T12 and operating records when available; distinguish documented figures from owner statements or estimates.
If financing is used, rebuild the cash-flow and cash-on-cash calculations using actual lender terms, reserves, costs and debt service.
The base case and downside case both depend on assumptions that have not been tested against a real property. This example demonstrates an analysis process; it does not establish that a property should be purchased.
Bring your criteria. We will discuss the next step.
You do not need to have a property selected to begin an investor acquisition conversation. Buyer representation, full-service management and limited oversight are separate service decisions.
Educational illustration only. No guarantee of rent, occupancy, appreciation, cash flow or returns. This is not a current offering, appraisal, property valuation or individualized financial, legal or tax advice. Obtain property-specific information and appropriate professional advice before making a purchase decision.
First Class Realty & Property Management, LLC | NC Firm License C39921 | Allison Papandrew, Broker-in-Charge, NC License 283257 | Equal Housing Opportunity.
Questions or corrections: allison@fcpmnc.com | 704-408-3730.
