PSA - THIS IS A HORRIBLE DEAL RUN!

4 Replies

A new investor just posted this potential 'deal'. I am not beating her up in any way, but it made my blood run cold. Full disclosure - I got completely wiped out in my investing in Virginia from 05-10. It's how I ended up in TX. I did crazy stupid deals like this that made me go broke. I hope we have convinced her on that thread to run screaming from this pending train wreck with doom. 

I consider my mission in life to warn others from nightmares of negative cash flow, working a job to keep the 'investment' afloat, collection calls, and Chapter 7. 

Here's the 'deal.' BEWARE, rookie investors!

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Hi guys. I'm in the process of purchasing a property, but I just realized it has negative cash flow when I factor in the maintenance and vacancies. However, I think one of the main reasons it has negative cash flow is because I'm going fha and I am putting a small out of money down, which makes the principal and interest payment higher than it would be if i had put down 20% in a conventional loan. I think the deal could improve over time if I refinance into conventional down the line and put more money down. What do you think? Here are the numbers:

purchase price is 270,000

property is a triplex with all 3 units already rented to long term tenants. the bottom tenant is moving out and that is where I will be living for a year.

Principal and interest is 1300.00

taxes are 2400 a year

insurance is 1800 a year

rents come out to 2100 per month total for all three units.

down payment is 3.5%

Here are a few bonuses

the property is in a really good neighborhood that is up and coming and this is a neighborhood I personally would want to live in for the next year.

Also, the units are outdated: old kitchens, carpet, etc. With some rehabbing, I could raise the rent so that the total rent for all three units is about 2500 per month.

So after i move out and get my unit rented. I think I'm looking at about a negative 169 a year or so. but if I refinance, pay down the mortgage and get rid of the PMI, things could look better.

Is this doable? Is this a bad deal? what are your thoughts on this?

If some experts on this board see any glimmers of hope here, please let us know. I see a slow motion, unfolding train wreck of financial misery, sleepless nights, anxiety medication, panic attacks, and avoiding answering the phone and lots of registered mail.

@Account Closed thx 4 posting. What part of VA did you invest in? I'm just getting started, really just marketing & negotiating with tire-kickers so far, but I'm wondering if it's the area that's the problem. Any info would be appreciated.

@Account Closed

  I completely disagree with you ... this lady wants to owner occ this property its by far one of the best ways to get doors.. and get better quality property than you could afford with the same downpayment  .3.5% of 270k is 10k ish... what else could she get for 10k down now your controlling a 270k property.. And were can you live for 169.00  a year.

why you would think this is such a bad deal I have no clue...

Now if your buying low value rentals that's only prupose to own them is to cash flow then yes no reason to buy even or negative cash flow.. but my sense of this is if its 270k for a tri plex this is in a good established area with decent values.

Totally 100% disagree with your what appears to be over convern for this person who is tyring to buy a home to live in.

Originally posted by @Account Closed :

If some experts on this board see any glimmers of hope here, please let us know. I see a slow motion, unfolding train wreck of financial misery, sleepless nights, anxiety medication, panic attacks, and avoiding answering the phone and lots of registered mail.

I'm not sure it will be that slow a trainwreck. Ahh, you go to love the 0.7% rule. I do like the FHA/buy and hold strategy though

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