I'm looking for some insight from experienced investors as to how you factor in short term debt service to your deal analysis?

I have the opportunity to wrap up a condo purchase with these terms:

• Purchase price 35,500 + 4500 in closing costs for an even 40,000 purchase price.
• 5k in costs to prepare condo for occupancy (flooring, paint, misc.)
• Personal Loan of 16,000 at 11.99%.  Three year amortization for a monthly debt payment of $531.36 ($6376.32 monthly)
• Anticipated Rent 1550 with a near 100% occupancy in our market.  
• Operating Expenses total $760 monthly (taxes, HOA, HOI). Heating, water and sewer maintained by complex.
• $790 NOI before debt service. 17.16% cap rate. Without debt service, it's roughly a 32% Cash on Cash Return
• Cash Flow After Debt Service $259/monthly = a 5.63% net cap rate / ROI

I have issues with the initial cash flow during the first three years until the loan is paid off.  Long term, it can be a tremendous investment but getting to that point is the "sticker shock" that's unsettling in my eyes.  At the end of the day, I'm putting up $31,000 of my hard earned cash to make 250 bucks a month for the first three years.  

I should also mention the condo could probably be sold for 80,000 once the repairs are completed and I await the REO's seasoning period (90 days). In my market, there aren't too many opportunities under 50,000.

My long term goals are to own a portfolio of income producing properties and the idea is for this condo to be the first property in that portfolio.  

With all that in mind, I'd love to get some thoughts from those of you out there who had similar scenarios early in their investing career.  Would it be better to flip this condo then apply what would be close to double my savings towards a better cash flowing property?  Or, because the long term outlook is so positive, do I just ride out the next three years?  

Thanks in advance for all of your thoughts

William, Assuming you are stuck with that acquisition scenario, AND you want to buy and hold, I'd refinance as quickly as I could. You will have about 50% equity so you should be able to refi into something more palatable. If for some strange reason you couldn't refi, I'd still hold it, since you're going to own it outright in 3 years. I'd try to set aside additional money in case the SHTF. Good luck! Jim

Thanks for the advice, James.  Unfortunately it seems this is my only option for financing.  Conforming loans aren't an option due to my self employment income and current primary mortgage payment.  I've spoken to some friends and family but no luck with private money.  This is my first property and it's such a low price compared to my overall market that I'm having trouble finding a commercial loan.  It seems a high interest personal loan is the only option and yes, I was definitely considering a refi in 6-12 months after purchase. Thanks again for your thoughts.