How big is cash flow right now?
I am hoping to get some insight and wisdom. I am looking to purchase my first rental property, but would love to get the opinions of others on here.
I am currently looking at a property in the Panhandle of Florida. It is selling for $130,000. I won't go higher than $125,000 (hoping to get it for less). However, I am still on the fence about even offering that due to interest rates resulting in low cash flow. Below is that data.
2/2 Townhouse that is estimated to rent for $1200/month (By a property management company and another realtor/investor) in a busy part of town that's a class B area.
Maximum Purchase Price = $125,000
Down Payment: 25% down = $31,250
6.5% Interest rate with a point buy down
30 year mortgage
Fixed expenses (Mortgage, Insurance, HOA, Taxes) = $857
Variable Expenses (Maint, Cap Ex, Property Management, vacancy) = $312
Estimated cash flow = $30
My strategy would be to refinance when rates go down, hopefully to the low 5's. I would want to update the flooring to LVP and I may have to repair some of the siding. The seller is willing to give the buyer a $5000 credit to closing or repairs. Is the gamble of little cash flow worth the potential opportunity in appreciation, tax benefits, loan pay down and potential refinance in later years?
Most Popular Reply
I would not be okay cash flowing $30 per month. If you have one month of vacancy that would wipe out your cash flow for more than 3 years. You're talking about making flooring and siding repairs too, this property may not have positive cash flow for decades.
I don't like any strategy that is dependent on something that is completely out of your control, like rates going down or prices going up. These 2 things may not happen. Then you're risking a lot for getting $30 a month IF everything goes according to plan. Which it won't.