First time rental buyer.. HELP!!!

[Michelle Francis]

My husband and I have been given an opportunity to buy a house from a friend but we are not sure that it is a good deal. It's a 3/2, 1758 sq ft. Located in N. California town, population 60k Here are the numbers: Selling price: $240,000 (appraisal is in the works) Down payment: $72,000 (30%-if there is a way around this we would like to keep more money liquid.) Rent: $1350, renter has been in it for 6 years and will remain for 2 more at a minimum All utilities paid by renter. Rental income guaranteed for 2 years by seller. Home was built in 2004. We are local so no PM is needed. We plan on keeping the house for the lifetime of the loan. What other info is need? We are feeling overwhelmed but want to get started

[Nick Baldo]

Hi Michelle, 

Happy to help you walk through the analysis on this! I made a copy of the rental analysis template my business uses: Michelle's Rental Analysis

On the surface, the deal seems to have tight, if not negative cashflow. Feel free to play with some of the numbers that I was guessing on. For example, I took a swing at a 5% interest rate, 30 year term for you $168,000 loan. You can make adjustments to that to see how it influences the figures. 

Some other numbers to keep in mind: 

• I put vacancy at 0% because of your guaranteed rental income
• I have a 5% allowance for property management and repairs/ maintenance. 
• I put in some initial numbers for property tax/ insurance. You will need to adjust this based on the property. This was a complete guess. 
• Water and Sewer was a guess as well. 
• Sanity check in any of the other categories...some may be zero...but some may not be. 

Based on the numbers currently in (which will change), the deal seems to have a poor cap rate, negative cashflow, and all in all a relatively bad deal. The only potential upside you have is the expectation that the property will appreciate quickly and you will be able to sell for significantly more than you purchased for. 

Please let me know if you have any specific questions and/or if you need help working through the analysis.