Dying to Buy My 1st Rental Property, but I've cancelled 2 contracts and don't know what to do next

9 Replies


kind of stuck here. I wanted to go Fha on a multifamily rental property. I improved my credit scored and even took out money from my 401k for a downpayment. I've signed 2 agreements of sale. On the first one, I realized the cash flow just wasnt there. it was a 270k building only making about 20k in rent a year and when you go fha, you're not putting much money down so its hard to cash flow due to the mortgage payment being higher than it would be if I had put 20% down. 

Also, when we did the inspection, the property needed way more repairs than I had the money to pay for of out pocket. Over time I would be putting a lot of money into the property. Sure the seller would give concessions, but he was not going to make all the repairs needed and I felt like this property was too risky. 

The second property had a similar repair problem at inspection, but this time it was termite damage and sewerline. 

So now i'm stuck. how can I find a property i can live in that cash flows? Should i do a 203k loan where i could finance the repairs? 

Should i do a construction loan? 

Any thoughts? Any experiences similar to this? 

I am in the same boat, cant find a positive cash flowing property. Everything I seem to find is either a wreck or obnoxiously over priced. Good luck in your search!

Originally posted by @Kay H. :

My recommendation:  

  • Move the location you're considering to one that commands higher rents.  You may want to set up your search based on how much an area can command in rent for you to cash flow.  You may find that your price point is going to rise.
  • Increase the number of units in your search- I can't tell from your post if you're only looking @ 2 flats.  If you ar, then consider looking @ 3 flats & up.  Maybe even properties that are officially 4 flats but may have a unit that pushes it to a 5 unit.  The greater the number of units the greater the rent
  • FHA 203K- Definitely get qualified for this loan to include financing of the repairs.
  • Analysis- Do you analysis of potential cash flow before making an offer.  Your post suggests you did the analysis after submitting the contract & then backed out.  Run those numbers first.  It will save you some frustration.
  • Last suggestion- Since you know what your maximum payment qualification, you should be able to run the numbers to determine your break even NOI. W/ that break even number, you'll then have some guidelines for your search. Those guidelines will drive the gross rent you need, price of the property.... It will even drive the location that supports your guidelines.

The thing I don't like about 203K loans are is that the PMI is there forever. I don't believe you can drop that even after you have 20% equity. That takes a bite out of any cash flow.

If you live in it, i would guess what you're actually trying to do is to have your house nut covered with you paying zero rent. Little different than cash flow and tougher to find. Particularly in a good area. Different factors go in the decision also. Aka, are u willing to live there, what type of tenant will you be living with, etc.

These deals exist, but usually ( unless you're willing to live in "bad" neighborhoods) they involve a significant rehab and/or other deterrent to prevent others with the same idea from also buying it.

look to 4 units and be conservative in your estimates.  Lots of deals won't work and that is part of it


Sounds like you need to study up on property analysis.

Garth mentioned PMI and yes, on an FHA loan you'll have to refi to get rid of it now. So, figure that into your strategy.

Remember that 5+ units is considered "commercial" property and financing depends on the building's income rather than yours, though your own credit-worthiness may still come into play. Even for SFRs and 2- thru 4-flats, it's still a good measure to use in your property analysis to make sure the cash flow you need is there.

ok...so its natural to have to look at a  lot of deals...that makes quite a bit of sense actually. 

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