Advice Needed! Good Deal, Wrong Time?

Question

Hello.  My Dad wants to sell me one of his rental properties.   It seems like a great deal in the long term, but will be very difficult/expensive to make it cash flow for the first couple of years.  I recently lost my job, have about $150k in cash to invest, have a few cash flowing rental properties, and really want to use the $150 to maximize cash flow so I can avoid a regular job and focus on real estate and starting a new business.

Home Value: $425-435k.  Sell for $400k, he'll carry $100k of that interest only, and gift 10k/year for 10 years.

I really don't want to pass this up, but putting in the amount of money needed for a tiny bit of cash flow, or losing money each month for a couple years would risk running out of money and pushing me back to a regular job.

Would you pass on it?  Any creative ways to pull this off?  It's a family thing, so bringing in a partner would not be an option.

Thanks!!

Dave

Tony Savage · Answer

David,

So you're not working right now and don't want to go back to a regular job.  If you truly want to make real estate your business you should flip to grow your capital.  I would not lock up 150K for a tiny bit of cash flow.  If you haven't flipped before, reach out to fellow investors and join investor clubs in your area to learn best practices.

Go get it!

David Nunn · Answer

Thank you both!

-It's difficult to cash flow because the current rent barely covers what the mortgage would be.  I could potentially raise the rents, and put a little more down, but that would be putting a big chunk of the money I have set aside for investments into an asset that doesn't do what I need in the short term.

-The other properties, along with my wife's income provide enough income for us to live on if we live extremely frugally.  I'm looking to invest the extra money into high cash flowing assets to take some pressure off.

-appreciation outlook is ok, but not great.  Fast growing town, but boring townhouse/nothing special.  Normally I wouldn't be targeting this one, just hard to pass up the discount + 10k year in "gifts" on the seller financed portion.

-Would love to move in, but we JUST bought a home with an ADU we're going to STR a couple of weeks ago.

Bradley Buxton · Answer

@David Nunn

What is the appreciation outlook?  If you cash flow $200 per month but gain $36,000 in equity per year then you're actually earning $3200 per month.  I agree with @Jonathan Greene that investing just for cash flow without another source of income can be a risk of burning cash.  The family deal seems like it might be a good house hack if you can live there.

Jonathan Greene · Answer

I don't like family transfers unless they are a flat-out gift, but they can be advantageous. A lot of things are hard to cash flow right now, but why is this one hard to cash flow? Generally, if you are out of a job, buying anything is not a good idea until you have that secured so you aren't burning income into a fire. You do have the experience with other properties, but what kind of cash flow are you making on those (plus this) that make it seem like you could not go back to the 9 to 5?

I think there is a good deal in here to be made though.