Here's my situation:
135,000 property - 3 bed 2 bath
15% (20,250) down that will be borrowed from investor at 10% over 10 years. The monthly payments to the investor will be $268
I'll borrow the rest from the bank (114,750) at 3.75% over 30 years. Monthly Payments are $531.
Estimate taxes to be $1000/year
Estimate insurance to be $800/year
I could get at least $1100/month in rent from the property.
I expect to cash flow $144/month on the house but that is before any possible maintenance/vacany/etc.
My question is - Is this a great deal because I'm not using any of my own money? Or am I missing something that will make me regret this deal?
Not enough cash flow and you need to add 10% vacancy
Just because your using opm don't mean it's a good deal
Just some food for thought !
I agree with @Donovan Castaneda , you need to take out a percentage for vacancy (I do 10%), and depending on the condition of the property, a percentage for maintenance (I like to start at 10%, but love to be able to build in more, as I sometimes mix maintenance and cap ex). Both of those are excluding cap ex, which is the depreciation of say, the water tank, roof, appliances, etc.
I would not do this deal. Many tv shows and simplistic numbers, like rent minus piti make things look great, but they that is not being analyzed in a professional way.
Are you a homeowner? Have you thought about doing an FHA loan on say a duplex or 4 family? That way you would be very low on a down payment, can rent out one unit, and live in the other.
There are many ways to do low/no or other people's money deals, but the numbers don't lie.
There is a really good post by Ali Boone on analyzing a property very quickly on a napkin. I'd check that out. You learn how to calculate cap rate and cash on cash return. I think once you do that, as well as what Donovan mentioned, you would see that this is not a good deal, at least in what we know about thus far.
Good luck on finding that first good one!
Bill I think Donovan hit it on the head. Your monthly cash flow is probably break even at best when considering capex and maintenance.
I do own my house and I have a rental right now. I used my own cash to cover down payments on both. I have just never used opm before and wasn't sure how others analyze those types of deals.
I appreciate the feedback and will check out that post!