All Forum Posts by: Colby Burt

Be very careful with DB. The city is very anti-STR. They scourer the listing sites and if they find one listed in a residential neighborhood, the fine is $15,000/night. Yes, I said fifteen. I'm sure you're already doing your research but just a friendly reminder as someone who lives here.

You’ve got a bunch of things to consider. $400/mo negative is a non-factor. Over 5 years that’s $24,000. On a $420k deal that’s 5% down on an investment deal. That’s a win in anyone’s book. 

BUT, you’re also going to have APPROXIMATELY  4% times 360k (your average balance over those 5 years) times 5 added to your balance. So you’ve got $70k in interest tacked onto your balance. That’s basically the same as negative cashflow except someone else is paying it for you. This this property is really negative $1,500/mo. 

So. In 5 years you’ll have $420k loan plus $24k in negative cashflow payments, minus $120k in principle payments, plus $70k in interest. So you will have paid $24k to lower the loan balance from $420k to $370k. That means you’re hoping to make $26k in 5 years as long as you have zero repairs, capex, vacancy. 

If you are ABSOLUTELY POSITIVELY SURE you can refinance in 5 years, and you won’t be disappointed if you only break even for these 5 years (1 month vacancy and one $1,000 repair per year will guarantee that’s the best you’ll do.) it’s one way to get your first property if you absolutely positively don’t need the cashflow and in fact won’t be busted if you have to toss in more. 

You forgot to put your location in your profile as where the property is could make all the difference. If this in the Midwest areas of old properties with high expenses and low appreciation it’s probably a hard pass. If it’s a condo in San Diego or Hawaii where the costs are fixed it’s probably an easy yes. 

 also look at it this way.. very few quality properties and I have to assume this is at that price point we are not talking a 120k rental beater in a C D area..  will never cash flow with zero down. so you either put the down payment up front or you put the downpayment when you refi.. the risk is thinking you will never have to put any cash equity into this deal.. UNLESS of course the 420k house is really worth 500k plus today..  I know if you laid this scenario out for me in the SF bay area  many investors would have gotten insanely rich doing this.  IN markets with very low or poor historic apprecation or super high property tax's or suspect rental pool then for sure this is a risk..  But we are coming into a season of guru's and investors dusting off all the no money down owner finance sub too type transactions.

@Colby Burt

Why would you want an investment that you have to make monthly CC capital infusions just to keep it going? Seems like a really bad investment.

I’d run from this deal.

@Colby Burt

I would run as fast as I can away from this deal

 Hey I get it, sometimes we get excited about a deal and let our emotions take over. Remember you’re an investor now and your decisions need to based off numbers not emotions. Trust your gut I’m sure you knew the true answer to your question and you just came to BP hoping we would agree with your heart instead of your gut lol

He means the $24k out of pocket is only 5% of the purchase price. Before I add my 2¢ let me ask what is ARV or what are the comps in the area? Is $420k market value or is this below/above market value? Since you will be negative cash flow when something goes wrong with the property are you able to cover? (Assume worst case like roof or mechanical systems) Assuming you refi out will you be willing and able bring money to the table? Also make the worst case scenario will this property cash flow under a 30yr fixed at a higher interest rate like 6-7%? These are questions I would ask. Because with the 4% interest and principal only payments of $24k/yr after 5yrs you will have a balloon payment of $375k+ if my math is correct and like others said if the market turns and your now under water you will have to bring money to the table assuming $420k is the current market value. Even if the market stays flat you will have to bring money to table to refi out so you are really banking on appreciation. Ultimately it's your decision and if you feel you can handle the risk then I say go for it but this isn't for the faint of heart that's for sure