First Timer - Private Money Offer on SFH Rental

[Tyler Kress]

First timer with only a few weeks of REI study. Any feedback you can help provide would be appreciated!

I have 22k in the bank and comfortable parting with 10k tops (up to 15k on heloc also available). Should also be noted gross salary of wife and I is currently 108k total and we save 1k more than we spend each month after all taxes/expenses. 

I was offered a deal from an experienced investor who owns 150+ properties. He will offer to be my mentor and teach me what he knows, and have his company manage the property for 5% of rent. The deal is a $20k house in Peoria, IL. I bring $10k he brings $10k. I will collect rental income from day 1. After 18 months I pay him $15k and own the house free and clear. 

$650 estimated rent for 2br 1ba. Plan would be to hold it. Conservatively estimating $500/mo cash flow. 

Rent + Other Income: 675/mo

Taxes: 50/mo

Ins: 25/mo

Property management: 35/mo

CapEx budget: 75/mo

Assuming his references and property check out, does this deal seem good for someone in my position - from purely a deal ROI type perspective and a time/opportunity perspective? I am thinking at the very least I will benefit from having a mentor and gaining that network. He owns his own contractor company and property management company and has done about 30 of these small house deals in the Peoria area.

Pros I can think of:

Can start right away instead of doing more study/gathering deals over the next few months (might run out of steam and never start)

Gain a mentor, learn, network

The details of the deal are easy to understand and the variables are all well known

Since the house is only 20k, if market crashes it won't really matter as long as I have tenants paying rent

Not paying as much interest compared to a 30 year loan

Can still try running deals in parallel if wife and I sell current house (~30k equity and can't rent out due to HOA rules) and house hack or make another investment

Lender currently owns the house and is placing the tenant now, no worry about a vacancy period to begin

No startup fixes/rehabs needed

The major con to this deal I can think of is it will take away a lot of operating $ we could be using for other opportunities in the short term ($16k in 18 months (25k minus $9k NOI). However, besides using the move in low money down loans, we would not really be able to pull off any 25% down payment deals without getting deeper into foreclosures/networking/higher risk taking in my opinion.

We are doing our due diligence on the lender as well since we just met him, asking for books on his other investments in the area, he provided references to other partners, etc. 

[John Taylor]

@Tyler Kress be careful and do your research on the person you are partnering with.  Get references of people they worked with in the past.  It sounds like a great opportunity and if it's legit would be a great way to get into it.  With that being I would contact @Jesse Mitchell and send him the address.  I also have several rentals in Peoria and the surrounding areas.  A house for $20k is probably not in a great area and will have headaches.  The fact that the potential partner is offering to manage this property for 5% seems a bit below market to me.  Any good managers in this area are closer to the 10% range especially for a more than likely higher problem type of property.  I notice some responses say stay away from Peoria due to the Caterpillar relocation.   That is no doubt a problem and a worry to many, however the rental market is strong here.  You should not be investing for appreciation anyway.  If you want to speculate you might as well invest in the stock market.  Invest for cash flow.  Especially in the Peoria where appreciation is at or below the national average annually.  My advice is to do your homework and be 100% certain of who you are partnering with.  Good luck.