$0 Cash Flow Now for $60,000 Cash Flow Later?

[Joel Florek]

Hello BP Community!

My question for you is would you take $0 annual cash flow now for $60,000 annual cash flow in 20 years(progresses $10,000 annually every 3 to 5 years with refinancing)?

I am 22 years old and currently own 4 units in a small town with a strong, diverse, and consistent economy. I live in one of the units and rent the other 3 to cover all expenses on the property so I live for free.

I also have a job that pays very well for our area and allows me to not be dependent on my cash flow from my properties, although I would in the future, ideally not to distant future. I can fix anything, know my numbers, and have a support network to back me up if/when I run into something significant.

The Deal

I have been analyzing a deal for the past 2 months and working with the owners and a number of investors to try and close. Needless to say my investors don't want to give up as much equity as I would like to get given I don't have cash to bring to the table.

After conversations with a local bank president and the owners I have been given the option to purchase the property with roughly 18% down payment seller financed and the remaining 82% financed through the bank. The terms on the seller financed portion has a 3 year balloon but the bank has agreed to roll that into their loan automatically in 3 years to ensure I don't get stuck not being able to pay back the owners.

The property has 16 two bed units all with porches/decks on a small lake(duck pond) in the center of town. Its arguable the best location for a property of this size and the second best quality units in the area. There is an opportunity for 10% rent appreciation.

As the numbers currently stand accounting for all expenses with, vacancy,  a strong maintenance, capx, and property management I would be left with $0 after taxes for the first 3 years until I refinance. Fully paid off this property will confidently provide $60,000 in annual income.

Of course if there is less maintenance expense(or I do a lot of it) and I can be savy about pushing off some of the capx projects I would have the opportunity to make $3000 plus I would also be making the property management fee in my budget of roughly $6500. If something goes very wrong then I am left taking money out of my own pocket to keep the building afloat.

I do have all the numbers and financial statements on the property over the past 3 years and have padded them but its a big risk to be 100% leverage without significant opportunity for rent appreciation.

Please give me your thoughts and personal philosophy. I have my own but wanted to get the BP spin on your ideas.