$30K to invest, any suggestions?

Question

I have $30K cash and I would like to park my money into an investment. I was thinking maybe a SFR, which would put my PP at $350K, considering that would be a 5% down conventional loan which would put my payment at $2400 or so and considering market rents are around $2500 or more in that area it would make me a great investment. Any feedback on this would be greatly appreciated. Thanks!

Nathan Gesner · Answer

That's not the way to calculate a "great investment."

$2,500 income

$2,400 mortgage

$100 left over each month. One month of vacancy will cost you $2,400 for the mortgage and at least $100 for utility. That's a loss of $2,500 or 25 months of income.

Even worse, and more likely? The water heater goes out and costs $800 to replace (eight months of income) or a bad tenant causes $2,000 in damages and forces a month of vacancy. Now you're $4,600 or more in the hole and it will take you 46 months (almost four years) to catch up. This assumes rents stay high. What if your market becomes saturated and you have to drop rent 10% to keep it filled? Now you're losing money every month before dealing with any maintenance, vacancies, evictions, unpaid rent, or other realistic scenarios.

Cash flow is determined AFTER paying all expenses. Your expenses should include setting aside 30 - 50% of the rent every month for vacancies, maintenance, capital expenditures, taxes, insurance, etc.

How To Calculate Cash Flow

Odie Ayaga · Answer

You calculated a 5% down conventional payment on an SFR. Are you looking to owner occupy then rent it once you move out? Otherwise you're generally looking at closer to 20% down.

Jaron Walling · Answer

Can you expand on those numbers? PITI of $2400, on property that rents for $2500 is a dangerous investment unless you factored in expenses. Congrats on saving for the down payments. You want to be sure you deploy that money in the most effective way possible.

Edward L lauckern · Answer

I can help

Steve Graves · Answer

Consider buying a foreclosure from fannimae or freddiemac. Your chances of better cash flow will go way up. That's how I started out. I have never paid market price for an investment property. Find a hard money lender for the rehab and when it's ready to rent, refinance it into a Conventional mortgage.

$30K to invest, any suggestions?

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