1st buy & hold deal closed using gift of equity for down payment

[Jeremy Slater]

Hello everyone,

I wanted to share the details of my first buy & hold investment property, located in Collinsville, Illinois, to see what you all think. The property was purchased from a relative who gifted more than enough equity to use as a down payment.

The agreed upon price was $80k. The large gift of equity (~35%) allowed us to tweak the numbers around to get all closing and prepaids with the exception of only $100.22 OOP (the lender came up with the OOP #, it just had to be > $0)

Property details:SFH 3/1, 1080 sq. ft. w/full unfinished basement.

Appraised Value: $120k

Loan amount: $85k

Improvement costs: $3k

Based on analysis the property should rent for $950-1050/month

Cap Rate: 8%

Loan details: 20 yr. fixed @ 4.5% = $538/month

The lender got me here. They had me pre-approved for a 30 yr. fixed @ 4.25 which would have given me an estimated cash flow of $150/month. A week or so before closing they told me their secondary investor couldn’t do a 30 yr. on an investment property that included a gift of equity but they could do the in-house for 20.They also stated that they could refinance in 6-12 months to a 30 yr. With this change the cash flow goes to nearly $0. Given the amount of equity in the property and its potential to cash flow after a year, I decided to go through with the purchase.

My wife and I are doing the work to get it ready to rent which should take no more than 2 ½ weeks. Improvements include bathroom and kitchen updates, painting, new doors and trim throughout as well as some deck repair.

I did my research and found this to be worth taking on but I'm also a newbie that has only completed one deal in the past (flipped a SFH successfully). Please tell me what you think here. I'm looking for professional opinions and constructive criticism. I will be happy to provide any other details if I am leaving anything out.