Should I eat into my savings for a good deal?

8 Replies

I've currently analyzed a solid deal that would result in a monthly cash flow of ~$615/month, and has a ~31% Cash on Cash ROI (used the biggerpockets rental calc). However, I'd have to eat into my savings in order to do the deal. This would be my first investment property, and I'm currently in the process of rehabbing my house which we just bought a month ago. I would only have around $5k in savings after all is said and done between purchase of the investment property and rehabbing my current home. Any suggestions?

depends on you income to maintain your household ,but the numbers are good and you can quickly replace your saving through a cash out refinance  

I’m going to give you two answers.

First, let’s clarify that analysis is actually cash flowing $615 a month. That means you get to keep 7k a year on 22k after rehab, tax, debt service, holding costs, property management, cap ex, and other expenses. That’s a stellar deal and I’d find a way to get that done. Only having $5k left in savings is a no brainer But, that definitely does not mean $615 in rent. I kinda suspect it’s closer to the latter.

My second answer is you’ll never go bankrupt by not taking a deal. But you can absolutely go bankrupt if you do take a deal you can’t afford. But, if your numbers are what you say they are you have a lot of options including passing it off and taking a good finders fee, you could take a partner, or I would say you’ll probably be fine and build your cash reserve back up.

It’s up to you but please make sure that you are truly doing a good analysis.

Thank you @Steven Picker ! The income to maintain our household would be covered by our current jobs, and we'd be able to save more based on the projected flow of this property. What is a cash out refinance?

Originally posted by @Andrew Ware :

I’m going to give you two answers.

First, let’s clarify that analysis is actually cash flowing $615 a month. That means you get to keep 7k a year on 22k after rehab, tax, debt service, holding costs, property management, cap ex, and other expenses. That’s a stellar deal and I’d find a way to get that done. Only having $5k left in savings is a no brainer But, that definitely does not mean $615 in rent. I kinda suspect it’s closer to the latter.

My second answer is you’ll never go bankrupt by not taking a deal. But you can absolutely go bankrupt if you do take a deal you can’t afford. But, if your numbers are what you say they are you have a lot of options including passing it off and taking a good finders fee, you could take a partner, or I would say you’ll probably be fine and build your cash reserve back up.

It’s up to you but please make sure that you are truly doing a good analysis.

Thank you Andrew! The property is $130k, I'd put $15% down, and get $1,600/month in rent. I've estimated ~$13k for total annual expenses as there is very little rehab (~$3k),  no property mgmt, and it's currently being leased. I factored in 5% each for maintenance/repairs, vacancy, and capex.

It sounds like there are options with regards to a good partner or using the cash reserve as back up.

Thanks again!

This is kind of a simplistic answer, but are you getting $615 a month in interest on your savings? If not, then maybe you should invest it in this property. That's keeping in mind that you want to keep something set aside for your own personal emergencies, etc.

Rather than refinancing, you can also do a HELOC which will allow you to dip into your equity if needed. With a cash-out refi you take it all out at once. WIth a HELOC you can pull money out as needed.

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