It’s my first time! Help me analyze this deal!

[John Mann]

Hey, guys. This is my first time posting here and I’m in the middle of trying to figure out my first deal, so please be gentle!

So, a buddy of mine from high school that I know pretty well offered to mentor me in real estate investing. He’s been immensely helpful and has answered a ton of questions that I’ve had. We are going in on a flip together and he is even offering to allow me to buy my first rental property from him through owner financing. I trust him, but I also want to make a decent deal where I end up with approximately $200 of cash flow per month on the single family rental that he has offered me.

The problem here is that I cannot seem to find a way to calculate this deal in a way where I have acceptable money put back for Cap X, repairs, and vacancy, while making an offer that isn’t terribly low for the value of the home, which is approx. 98-105k.

Am I screwing these numbers up, or is this just a deal I should pass on? It’s possible that he is just trying to teach me a lesson about how “not all deals should be pursued”, but I want to exhaust my options first.

Thanks! Y’all are my last hope!

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*This link comes directly from our calculators, based on information input by the member who posted.

[Doug Shapiro]

Hi @John Mann,

I would pass on this deal.  It is a great deal for your friend.  He lends you 90k, and you pay him about $7,200/year.  That is a nice 8% return for him.  

For you, although you buy the place with just $1,000 out of pocket, you'll probably end up losing at least $1,000/year. The numbers just don't look that great. Your vacancy is low and CapEx is low. If you are not going to be managing the property and renting it out, then there is another 10%/month going towards management fees.