How To Make This Work
Looking at a property to use as a rental. Submitted contract late December and understand the contract may be signed tonight. Comps are around $127,000; the contract is $106,000 with no repairs necessary. We are trying to do this deal w/100% financing. However, since we are not owner occupants, the interest rate will be 8.5%. The new tool, Proformanator, on this site indicates to me that this is a no go. We first did our exercise using a different formula and concluded this would be a positive cash flow.
Taxes are $2,800 a year; HOA is $300; insurance at $700. We want to rent at $1300.
Does anyone have any suggestions on how we can turn this possible OOPs into a ++?
8.5% is steep. I am not an advocate of bank financing but in todays environment thats high.
Have you explored the existing financing?
Check with your bank and see how much it would coast to buy the points down. Then do the numbers and find out how long it will take to recoup the money. If your looking for a positive cash flow and a long term investment I think it's worth doing then. Also look at increasing the rents 10.00 each. Good luck. Tripp
The Proformanator most likely thinks you don't have enough cushion to support the property if you should fall on hard times. The figures should be something like this:
Purchase Price: $106,000
PI - 8.5% = $815.05
TI = $316.66
PITI = $1,131.71x12=$13,580.52
Rental Income: $1300.00x12=$15,600
Yearly Income: $2,019.48 (This does not include maintainance, financed closing costs, vacancy rate, advertising costs, or any other unforeseen circumstances).
2K can disappear in a hurry when you have a high priced property. It is half a HVAC replacement, almost a full roof, less than two month's vacant PITI, etc. This doesn't mean the house is a bad deal, just to be careful you don't get yourself into something unprofitable. If the house is in an area that is appreciating rapidly, it could be an excellent buy!
-Chris
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Live long and be profitable![ Edited by c-brainard on Date 02/04/2004 ]
I'm not really sure how your Proformanator works, but remember you're in the L/O forum. Simply put, if you can L/O this property I don't care if there is any cash flow, I'd still do it. You're collecting 3-5% option money up front and they are buying at the end of 2 years or whatever. There is no vacancy. If they do vacate, great! You collect another 3-5% from your next tenant buyer. If the cash flow is break even I don't care. As long as I'm making money on the back end. It's a different story if you are simply renting the unit.
Ryan J. Schnabel