Help analyzing a no money down deal

[Brandon Smith]

single family Home rents 8-850 I will hire a PM sale price is 76900 20% down (15200) the down payment will cost 10% to barrow and pay it back. Finance 61,520 (assumption) with closing cost included @ 3.5% payment of 276 Expenses 5,558 (includes 5% reserves, 10% pm, insurance, taxes, hoa, repairs, admin.) NOI 3796 not including the loan for the down payment Gross income 9353 (includes 8% for vacancy) Cash flow 481 annually not including the loan for the down payment - 3719 cash flow including loan for down payment Curious if I did these numbers correct? And why do people use loans for a down payment? I'm not seeing the value yet. Is the deal bad? Bigger down payment ? I'm still learning

[Tyler Wehrung]

Brandon,

If I understand this right, you are borrowing $15,200 at 10% interest for the 20% down payment. In my opinion that is a pretty high cost of capital and will likely make this deal not worth your time. I think your ahead of most new investors with your thought process and trying to account expenses. However, I think your not accounting for a large expense - CAPEX. This is typically around 10% and accounts for big ticket items, such as new roof, HVAC, etc. 5% for reserves is probably a little light also, but I like to think worse case scenario to ensure my properties cash flow.

Typically people use loans for down payments simply because they don't have the capital up front to get into deals.  It can be worth it if the numbers are right, but I think your spread is too thin on this one.  Maybe consider a lower purchase price, smaller down payment that isn't financed, or a lower interest rate than 10% on the financed down payment.

I hope this is of some value to you, Good Luck!