Is this overleveraging?

[Bryan P.]

I currently own two rental properties. I live in a rural area and my wife and I make about 55,000-60,000 a year. We live modestly as she stays home part-time with our kids.

Anyways, one of our properties cash flows well (it meets the 50/2 rule). The other property hardly cash flows but there's only 7 years left on the mortgage and the property is almost fully updated within the last two years. At this point I am able to pay for repairs for both properties if I had to dip into my personal savings, etc. I have very little consumer debt to speak of (although I have a car about to die and needs replaced). That's the background information you need to know.

A coworker offered to sell me her duplex on owner-financing at a VERY LOW 5% downpayment and no closing costs. Great deal for me. The property is worth 65,000 and it rents for 1000 (500 each side). On a 20 year payback (at 6% interest) the PITI would be approximately 600/month. With increased rent it would be close to the 50/2 rule, assuming I could increase the rent payments to 600/month which is feasible for our area.

I cannot pay for this property with my personal income if something happened. That's the risk if I do this. So please give me your opinion on leverage. Is this opportunity over-leveraging?

[Steve Babiak]

If you can't get a HELOC, do you have any credit cards that have a decently high limit? That is one way to tide you over when reserves are a bit light.

The numbers on this opportunity sound pretty good, as long as no significant repairs are needed. If they are needed now, or very soon (like how much longer will the roof and heating system last), then you will need the funds to pay to get that work done. Just something to consider.

What sort of vacancy rate is common for that area? What's the employment (or unemployment) picture like? Population there growing or shrinking?