Need Help on My First Potential Rental

[Steve C.]

New to the site and forum. Some great topics and people willing to help. I hope to be able to return the favor in the future as I gain more experience. Thanks in advance for your reply and consideration.

Now for the deal analysis - I got a chance to get a rental for a sale price of $35K. It needs about $18K in repairs. This is definitely a rental opportunity as the area will support the rent, probably via section 8, but has not appreciated since the downturn. I figure the ARV to be about 70K. This property sold for over $125K in 2008.

In all the property is in pretty good shape. It is a HUD sale. It is a 4-bedroom and I hope to get about $900 a month. I have cash to cover the purchase and repairs. My questions are as follows.

How should I finance this property...

~ Option 1 - Should I just finance the purchase price - 80% of $35K and pay cash for the rest (27K)? My numbers come out to cash flow of $2,500 per year using a 15-year mortgage.

~ Option 2 - Do I pay cash upfront for all and then wait 12-months for cash-out refi? The problem is that I am concerned that the ARV will not come in high enough to get all my money out. I just don't know if in 12-months it will appraise at $70K. And with this option I would go with a 30-year mortgage and have a cash flow of $1,000 per year.

~ Does either scenario work better from a tax standpoint? With option 1, I have to put up more cash and get it back over time but my equity will build quickly. Option 2 allows me to get my money back if all goes well but would have a longer loan in years and very little equity.

I hope this is not too confusing. I be happy to answer any questions you have. Thanks again for your review in advance.