Buying my first property and looking for advice

[Jason Switherspoon]

Hello, 

I am just about to commit to my first rental property. I am in Colorado and I am buying the property through family. It is a townhouse appraised at $275,000 and I am about to commit to buying it for $250,000. The discount is because my cousin wants to give me a good price on it as I step into the real estate business.

I have run the numbers with a focus on cash on cash returns which looks to yield between 5% and 9% depending on what I get for rent and how much annual maintenance I will be doing.

Given the immediate 25k in equity and the cash on cash estimate, I think this is is a good first property for me, but please chime in on this one.

My biggest concern going forward is the tenant discovery process. I have read about using an application service where the potential tenant pays ~$50 and puts in all their information on a site and the site emails me with the credit score and background check. What have you guys used for this service and how did you like it?

[Bill S.]

@Jason Switherspoon so your cousin is not really doing you all that much of a favor. If they sold via an agent they would loose about 7% off the top with agent commissions and title fees etc. When you factor in timing and convenience it looks like you might be doing them a favor. Are you having a property inspection? If you don't do that, you are doing them a huge favor by taking all that risk.

You didn't mention how financing was working on it or any of how your derived the cash on cash yield. Getting a cash on cash in Colorado for that price point usually means it's highly leveraged or that you have made some other error in expenses or expected income. I would also point out that the 5% to 9% rate means that you could be off by a factor of 2. What if it goes the other direction you might break even. 

I'm not saying it's bad or good. Just know what you are getting into.