Possible Rental with Creative Financing

7 Replies

Hello BP,

I was interested in seeing if this deal is worth pursuing considering it is a Subject To and will be very minimal out of pocket expenses. 

The home is a 4x2. Rent is going to be a minimum $1200, but I am pretty sure that we will rent if for $1250. Monthly PITI is $925, with 10% towards vacancy/repairs total monthly goes to 1050. Guesstimating $200 monthly cash flow.

Loan is for $143k and ARV at $150k, so only $7k in equity to start.

Home was flipped in 2012 as it is from the late 60's. Backyard is only dirt and dog poop with quite the slope upwards on back half of backyard, should probably be xeroscaped come summer. But, only needs pooped picked up as of right now. Then grease fire got on ceiling above stove for about 7sqft, only repaint needed, 2x2 piece of drywall needed to cover bottom side of airduct in basement. Then this guy is ready to lease.

Then I am guessing only 2k-3k for repairs and acquisition costs as I get a discount working for a title company as my W-2.

So with only 2k-3k out of pocket would this be a deal worth pursuing on a Subject To basis?

Appreciate all of your time and consideration,

At less than 1% rent, it's at best a break even property from a cash flow perspective (10% for vacancy and repairs is pretty lean and you didn't budget for CAPEX).

If you have a portfolio to cover a break even property during the bad times... then go for it.  If nothing else there is principle pay down on the mortgage gaining you wealth over the long term.

I'm a long term player, I fully plan to pay my mortgages for 30 years and actually own the properties I buy some day.

One last thing to be aware of is this property will likely negatively effect your DTI which may make future financing harder.

If you buy a property "subject to" does it negatively affect your DTI. The mortgage stays in the sellers name so I wouldn't think it would even show up on your credit report.

Originally posted by @Bruce Stayner :

If you buy a property "subject to" does it negatively affect your DTI. The mortgage stays in the sellers name so I wouldn't think it would even show up on your credit report.

 So you're going to commit mortgage fraud when the bank asks you to list all of your debts and liabilities and not put it on there?

@Nathan Emmert  

So I asked an honest question and you have to come up with a snarky answer. I thought this site was about helping people.

Originally posted by @Bruce Stayner :

@Nathan Emmert 

So I asked an honest question and you have to come up with a snarky answer. I thought this site was about helping people.

 Was my answer not helpful even given it's snarky nature?

You have income, you have debt... what makes it to your credit report doesn't really matter.  Most banks are going to go by your taxes anyhow.

In my opinion this is not a good investment property. The ARV less 7% selling costs is less than you will have in property.

As a rental at $1,250 rent and 50% operating expense you will be making 5.1%.  I would want to make at least 3 percentage points above my cost of money so unless my interest rate was 2.1% I wouldn't buy.

Just my opinion.  Good Luck.

Bill   

If there was some very significant appreciation potential, it might be tempting to get in cheap.  However on a cash flow basis it doesn't look very good.

It seems like you get your 2 to 3K(which may be low) back very quickly - however to sell a property you could need close to 8% - commissions, carrying costs, taxes/fees and any seller assist.  It will nearly 2 years to get to a break-even point(never mind getting back your repair money etc).