Will I get a Positive CASHFLOW and A Good ROI ?

Question

Hi 👋! I am M.Samama Khan , watching Biggerpockets quit some Time And reading their books Like Book On rental Property Investing. I am a Muslim, I want to own a property but in Islam interests based Loans are Haram ( not allowed ) , but their is another way Called Diminishing musharakah  where I will put 20 % down-payment and Islamic bank will Put 80 % but its not like conventional bank , we will be partners in the investment, we both will share Loss and profits in our combined investment according to our share in the investment.  Now i own 20% they own 80% as partners. I will buy that 80% share of the islamic bank overtime in 15 or 30 year according to my will to buy their share , i am not forced to buy it . Now i don't own complete home , so they will ask from me to pay them rent in using their 80% share of the home. I am also buying their 80% shares overtime + i am paying rent to use that 80% of their share,  until i complete own it . Tell.me will that gove me a positive cashflow and ROI ?  . YES OR NO

Andrew Garcia · Answer

Hi @Alex Bill, theoretically, it should still allow you to cash flow if the deal is solid.

The biggest factors are how much you have to pay in rent to the Islamic bank and how much you are getting in rent from the tenants of the property.

Without estimated numbers, no one here can tell you whether it will or not.

Hope this helps! Let me know if I can be of any assistance.

Alex Bill · Answer

Hello Michael 👋! I was not able to reply on the forum because i got an accident hit by a truck , my family was in the car . Things are fine Just left with a broke ankle. 4422 Marvin Dr , Ford Wayne IN 46806 . Now tell me what would happen if i choose Diminishing musharakah financing option , Where i will Buy the property from the bank over 30 years during , But that time i have to give rent to bank in order to take control of the 80% share of bank ( as we put 20% down payment ) that rent rate i am not really sure what it will be but consider it around 6 -7 %. So please clearify will this deal be worth calling a Good deal? . One thing more the picture u are seeing here , i have use conventional banking loan , so you would have more data.

Michael K Gallagher · Answer

Hey @Alex Bill I have not done a Diminishing Musharakah deal before.  But in general if you are going to be living in the home it will not cashflow, as there is no rental income.  If you are planning to rent it out as an investment, and use the loan you described then the same principal applies to a standard debt service deal.  As long as your expenses, including your equity payment to the bank must be less than what you are charging in rent.

Do you know what your expenses vs possible rental revenue will be?