Indianapolis, IN · Member since 2013 · 29 posts · 8 votes
I have a home that a friend is interested in renting, the rate that they are able to pay wont net any cashflow, I would be breaking even. I don't foresee needing a PM, or it being vacant, I'm also sure the place would be taken care of. I do have a 40k Heloc attached to the property and I think that having access to the Heloc makes this seem ok. In part I feel like the cash flow could be made on another rental, I am still fairly new to REI, and would like to know any thoughts you have. Please share.
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
6y
Consider this: you're running a business. What you're considering isn't a business decision - it's more of an accommodation and easy solution. I recommend that you market the property at fair market rent and explore a quality tenant who would not only care for the property but provide the cash/ROI that brought you into REI in the first place. You're cheating yourself to do anything else.
And a word on friends...they're great to have. But if all they can pay is what they can pay and that's below the market rent, don't set that relationship up to be contentious when at some time you decide that you can't continue to subsidize their housing. (That's what you would be doing - subsidizing their housing...) Again, you would not be doing them - or you - a favor in the long run.
You're running a business so make decisions that are in keeping with that purpose/function. Use the HELOC to buy a less expensive property that can be rented to your friends at a price they can afford to pay - and that at the same time provides cash flow/ROI.
The old adage "no good deed goes unpunished" is one you can live without. Take care of your business first.
Rental Property Investor · Springfield, MO · Member since 2019 · 462 posts · 365 votes
6y
I would do that deal all day long. However, I am a buy and hold investor and not a relying on cash flow for personal income. Even though it has a zero cash flow, they will be paying down your mortgage note. If you take that gain in equity into your financial analysis then you will probably see that the property will have a 10-20% return (depending on where you are at in the life of the loan).
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
6y
Consider this: you're running a business. What you're considering isn't a business decision - it's more of an accommodation and easy solution. I recommend that you market the property at fair market rent and explore a quality tenant who would not only care for the property but provide the cash/ROI that brought you into REI in the first place. You're cheating yourself to do anything else.
And a word on friends...they're great to have. But if all they can pay is what they can pay and that's below the market rent, don't set that relationship up to be contentious when at some time you decide that you can't continue to subsidize their housing. (That's what you would be doing - subsidizing their housing...) Again, you would not be doing them - or you - a favor in the long run.
You're running a business so make decisions that are in keeping with that purpose/function. Use the HELOC to buy a less expensive property that can be rented to your friends at a price they can afford to pay - and that at the same time provides cash flow/ROI.
The old adage "no good deed goes unpunished" is one you can live without. Take care of your business first.
Indianapolis, IN · Member since 2013 · 29 posts · 8 votes
6y
I'm considering my inexperience also. for me not being concerned with vacancies to me seems to be the biggest plus and always having access to the HELOC.
Once you draw down your HELOC you will be cash negative on that property, UNLESS you invest in something that offsets it. In either case why be cash neutral on any property assuming there is an alternative. Said differently charge market rent.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Kevin Jackson the HELOC should have no effect on the properties cash flow. You should be claiming any HELOC interest on the other property that you used the HELOC funds to purchase. Interest follows use and is not claimed against the property it is secured against unless the money was used to improve that property.
Are you breaking even because it is a friend or would any tenant pay the same? My advice is don’t rent to friends or family. Keep business separate.
If you leverage it, make sure whatever you buy covers interest AND extra to pay the heloc down in a reasonable timeframe.. and on top of the the new place you buy still needs to cashflow.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
6y
Having a non cash flowing house with a heloc on it is like marrying a big fat Chic with long blonde hair . Some good just doesn’t cancel out the bad .
Listen to these guys who have warned you about renting to friends . Heed their warning !!. I can assure you if you do that your going to get your gonads stomped on sooner or later by that “ friend”