"Safe" Cash flow buy w/ limited appreciation or 203k slow start?

Question

I found a low cost buy that is close to rent ready. It's clean, maintained and needs a section of gutter and a water heater. Its in a calm area near schools and a massive park/equestrian facility. C because it's semi rural not overly developed area. It's not really in demand compared to other areas of town. I can exceed the 2% rule with this property but I will never gain large appreciation margins due to the size and location. This buy would be of lower risk to me and give me some training wheels for my first property. Get my LLC, my systems in place, Tax advantage, and start the clock on being a landlord in the eyes of lenders.

Only concern with the buy is that it is 2 lots over from the very edge of a flood plane ( no insurance required and my "exits". The house has had a hard time being sold because of low price. Lenders don't want to put together a loan for that price. Should I need to sell it I could be holding this thing for a long while. Unless I seller financed/rent to owned for someone.

My other option is to do a 203k loan live in a property (that will slowly appreciate) for a year then get out and rent it. This would allow me to get a property in an area I know will appreciate and generate cash flow. This will slow me down with cash flow and I may run into drama before I even get set up to rent it out.

My end game is to have a portfolio of all brick ranches from the 1950's to 1980's no basements no garages. I'm leaning toward the idea of a series of cash flowing "pigs" until I can acquire / trade up to what I want. Just looking to the BP hive mind for some clarity. Digesting pod casts and books can turn into white noise after a bit.

Thanks to all

RZ

Kevin Romines · Answer

Congrats on finding a nice cash flow deal. If all aspects of the deal look good, I wouldn't be afraid to buy it purely as a cash flow play. I like the thought of buying it and doing a rehab of some sort which will improve the property, increase the loan size and possibly make it easier for the person you sell it to to buy it.

I wouldn't do the rehab just to get the loan amount up, unless you truly see value in the improvements and the increased cash flow it could bring. If your concern is its not a big enough loan amount for most lenders, I would just talk to a local community bank that will hold the loan, as they can underwrite to their own guidelines.

The fact that you can cash flow at the 2% rule is a great buy for that aspect, don't be overly concerned about the financing, there are ways to resolve that. This will make a nice, positive addition to your tax returns and future ability to finance other properties. Keep 6 months reserves for every unit you have and at that point you will meet virtually all lenders reserve requirements.

If you can do the 203K or 203K streamlined, (35K max rehab, nothing structural) you have gotten into the property plus the rehab for no more than 3.5% which is cheap for a property that you anticipate will be a rental in the future. However, I would refinance it to a Fannie or Freddie when your done so you can use the equity to eliminate the MI and still have a great rate. Non-Owner occupied is typically only 1/2 point higher in rate then an owner occupied.

Then sit there and let that thing just be the cash cow that it is!!!

"Safe" Cash flow buy w/ limited appreciation or 203k slow start?

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