Rental Property Analysis

[Patrick Rowe]

I have opportunity to purchase a single family 3BR 1.5 BA 1610 Living area with a tenant already their paying $900 per month. The asking price is $65,000 for the property. I have a banker that will do a 100 percent financing at a interest rate of 5.75  for 30 years. What do you think about this deal. I'm coming up with $371 per month in cash flow if I manage it myself. The property value is around $102,000 according to the comps.

[Mehran K.]

I have not seen 100% financing on any investment property since I've been investing, how certain are you about this loan? Have you been pre-approved? Where are you getting your comps from? If it's worth $100k, while is it being sold for $65k? Some questions you'll want to consider:

• What works needs to be done on the property? 
• How long have the tenants been there? Is $900 at/above/below market rent for that type of home?
• Property Taxes?
• Insurance Cost?

I never factor in cash flow from managing the property on my own (well I never manage). But even if I did manage the property, I'd calculate my return based on the fact that I'm paying for a property manager. This way, if you decide to use a property manager in the future, you know what your real cash flow would look like.

Aside from that (because we don't have all the figures), just using the 50% rule I'm getting:

$900 * .5 = $450 - $379 = $71 cash flow/month 

What expenses were you accounting for in your calculation that lead to you arriving at $371/month?