Getting started in rental property investing with

4 Replies

Good afternoon....I've been reading the book on rental property Investing. A wealth of information however I do have a question. When doing the numbers to see if a property will return a positive cash flow in relation to using a FHA ****. Do I have to account for anything different of course my down payment is smaller than if I used a conventional 20% down payment to get started and figured FHA would benefit me better to start out...Nervous but yet ready to dive in!

@Ralph Chappelle

Yes, you'll need to take into account the property condition and PMI or Private Mortgage Insurance. It's an extra payment you'll need to make getting an FHA loan. It might leave after you have 20% equity in your house but you'd have to consult a loan officer or banker for that. FHA has tight property condition standards, the place can't be a rehab and needs to be turn key. If it is a rehab you'll need to go FHA203k and get a scope of work done. Then that needs to be approved and you'll have to deal with inspections and draws -it can be quite complicated for your first time.

Thanks Nick for shedding some light on the process. With all these variables how do you run the numbers on a property if you're planning to use a FHA loan How do one determine if the property will produce a positive cash flow when using that type of loan?

The condition of the property and market rents in the area are something you should look into. Keep in mind with FHA and having PMI your monthly mortgage will be higher than if you put 20 percent down. That's not to say it couldn't still work. A quick calculator with property purchase price and interest rate should give you part of the equation. Then you just need to find out how much rent is in the area. Something not updated since 1980 isn't going to rent for as much as something with fresh paint and a bit of a facelift.

Ideally the goal is to have positive cash flow.  Everyone is different on how much they want per month.  Me personally it has to get at least 250 per month in cash flow after all expenses are paid.

Best of luck to you