Bad deal or just bad math?

[Travis W.]

Hello everyone,

Just double checking my math on my current home. Can anyone give me insight regarding these numbers? I am pretty new so I am not sure if they are right..

1. Bought a house for $127K. at 3.750 interest using a 0 money down 30 yr-fixed VA Home loan. (paid $1k in earnest money).

2. Monthly payments for the house are roughly $826. Principle is about $194, Interest is $394, and escrow is $237. Utilities are $220-250.

3. The house is a great house in a great location, and I think I can get 1300, maybe even 1400 dollars in rent a month.

Now, I used the BP calc to determine cash flow.. and I feel like its off or I am missing something. It is claiming my P&I is 550ish.. which isn't wrong, but I pay the escrow on top..so its effectively $300 dollars more a month than what the calc shows. So,

Scenario 1: $1300 rent + tenant paying utilities seems to cash flow out close to $200-300 dollars.

Scenario 2: $1300 rent + myself paying utilities seems to be negative $57 cash flow or so.

If I didn't have the escrow, it would be like $400 a month in cash flow.. I guess I don't understand how escrow account works..

 I would assume that follows me wherever.. So am I misreading my math here, or did I not fork out enough for a down payment to lower monthly interest payments and its biting me hard in the cash flow area? Or is this one of those scenarios where its better to take the loss for a bit until I can maybe do a refinance and offset some? or am I actually ok on this..

[Brent Coombs]

@Travis W., being a beginner investor is one thing, but, what have you really learned so far? Can you find "deals" yet? And if you feel you can, your excess W2 might be better utilized in saving up as much investment deposit/s as you can, rather than worrying about paying back your current mortgage quicker, given such a tiny interest rate? 

[Because, other than your primary at any given time, all your other properties will have been refinanced into investment loans anyway, right?]

In other words, I suggest you place less importance on the zero down and low interest rate that you've relied on in looking for your current primary, and more importance on finding discounts from current/value-addable value. You need to know the answer to: Why (and at what price) is this next property a super-bargain?

Then, if you also want to take advantage of your VA interest and terms, then that's a bonus!

But please, each deal should stand up on its own merits, at civilian investor interest rates!...