Talk me out of this one

[Matthew Rutledge]

I've let myself get a bit emotionally involved in this one. Please talk me off the ledge!

I've run this through the calculator, and it says it's a negative cash flow deal financed under 15 years, pretty much even at 15 years, and a money maker in the 20-30 year range.

For some reason, I can't get it out of my head.

It's a condo in Colorado Springs, CO (about 100 miles from my home west of Denver). Asking price is $38,000. Rough guess is that's about a 10-15% discount. It looks like rent should be right around $550. HOA is $125/month and includes pool, trash, water, sewer and snow removal. (That info doesn't change the numbers, but makes the place more rentable.) Taxes are a mere $205/year. The neighborhood is pretty nice, but not upscale. I was figuring 5% vacancy, 10% property management, and 1% repairs.

Here's the kicker - My mortgage guy told me most banks won't touch a note that small for any real length of time. If I do it, I will really be stuck using my HELOC with a 10 year repayment. (Cash flow negative.) I guess there's a new rule that defines a mortgage as risky when fees exceed 1% of purchase price. This is where my gut says to walk.

But then the brain starts in. We can eliminate property management and just go with a tenant placement service ($800-ish). That makes things a bit better. Repairs? It's a condo. What can break? Vacancy? My other rental can cover a month here and there.

The gold nugget in my mind is that after a mere 10 years, I should be able to comfortably take half of the rent and use it to pay down the other rental, my primary residence, or a yet to be purchased property. And if everything stays flat, I will have purchased nearly $40k worth of property using only about $8k of my own money.

As a stand alone property, it seems to be pretty weak for my situation. But do we ever look at the whole portfolio? Combining income/expense with my other rental, I am still cashflow positive at the end of the month, and am just about at a point where I would feel comfortable taking the cashflow piece from the existing place to pay down the new note faster. Then we have equity building quickly in the condo (10 year note being paid down rapidly) and a cashflowing single family. When the condo is paid for, turn that back around and accelerate the pay down of the SFR rental... And that's where I get all wrapped around the axle.

I've been looking pretty hard for the last month, and I'm just not finding a whole lot that makes the numbers work. I think I'm starting to feel a bit desperate.

Thanks for help!

-Matt

[Jesse Hyder]

Under your best conditions scenario you are making $16 a month? When you drive across town are the lights always green for you? The repair costs you are estimating seem really low to me as well.

garbage disposal, oven, fridge, dishwasher, microwave, faucets, handles, knobs,locks, cabinets, closets, shelving, latches, carpets, paint, tile. These are all inside the studs. Then there is the chips, nicks, scratches, burns and so on, on the counters/floors/walls/sinks/tubs etc.

I'm doing my best to talk you out of it! hehe