Buying Property From a Friend That's Cash Flowing Already?

[Andrew Liu]

Hello, 

I'm new to real estate and this would be my first property. I'm hoping to see if this is a good deal and if someone can help guide me.

My friend already has a property that's cash flowing in Kansas City, MO. I want to say its like a C neighborhood (not sure if there's an actual site that'll tell you more accurately).

He already has a team in place and I'm pretty much just taking over his property and its pretty stable. He bought the property pre COVID, so his cash flow is definitely going to be different than what mine will be.

The question I'm wondering if its a good idea and if the numbers make sense.

Purchase Price: $100,000

Down payment: $20,000 (20%)

Current cashflow: $900

Property manager: $90 (10%)

His expense for 12 months was only $1,430 (inspections, repairs, management, eviction services). 

I'm using dealcheck and its showing a negative cash flow for the first year, but after that, it becomes positive. This is assuming:

appreciation: 3%/year

income increase: 2%/year

expense increase 2%/year

What are some considerations? Is it normal to have a negative cash flow in the beginning? Should I do a larger down payment? Would it be possible to take over the property and then increase the rent?

[Robin Simon]

One thing to watch out for is the financing aspect of it - could be a hurdle getting a loan if the transaction is "non-arms length" - i.e. between "Friends" - might be worth looking at seller financing too