Using investor for Down Payment - Missouri

4 Replies

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?

Thanks!

Bill

Not enough cash flow and you need to add 10% vacancy

10% maintenance

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!

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!

Thanks

Bill