Cash flow qestion on a rental? - Posted by Dori CA

Posted by dori(Ca) on December 20, 1998 at 13:05:55:

I had a friend that bought one that way. I didn’t believe her until I check out VA’s Website. 10%Down 6.75% fixed for 30years- It’s called Vendee Financing. If you buy as an 0/0 the down can be as low as $100.00. I’ts a really neat program!!! No-prepay/ This program is for investors and o/o

Cash flow qestion on a rental? - Posted by Dori CA

Posted by Dori CA on December 20, 1998 at 11:21:26:

I’m thinking about buying a rental that would give me $200.00 a month cash flow after mgt payments, taxes & Ins.

Is this a good enough deal? It’s a single family home 3br/2Ba 1500Sqft. The nice thing it’s in move in condtion.
My total cash investment will be about $6,500 Owner Finance at 6.75% $50,000 sales price

Thanks Dori

$200 mo. want pay the principal, interest, taxes. - Posted by Harvey Carroll, Jr.

Posted by Harvey Carroll, Jr. on December 23, 1998 at 19:57:23:

I suggest you go to a bank and ask them to prepare you an “amortization schedule” this will break down the Principal and interest payments of the $50,000 loan. You will see that the $200 a month will not support the re-payment of the loan. Also note that you will have to pay taxes and insurance and ““Maintainance”” in addition to the principal and interest payment.

I would do a couple of amortizations that would get me enough rental cash flows to cover “all” payments and make a little money in the process… Real Estate in general is usually a wonderful investment in comparisong to financial assests, such as stocks, bonds, ect… But make sure the numbers will work out and a banker should help you if not call a real estate broker, and ask him to do an amorization. If you have excel 97. I can send you one…

Re: Cash flow qestion on a rental? - Posted by Bill Gatten

Posted by Bill Gatten on December 21, 1998 at 14:20:19:


If the cash flow is of major concern (which it should be), why not consider trading the tax write and a portion of the principal reduction and appreciation potential for a [much] bigger cash-flow and freedom from expenses.

E.g., place the property into a co-beneficiary land trust (e.g., 3rd party trustee, co-beneficiary conveyance) and make the the tenants a 50% beneficiary. This will eliminate all (100%) of your maintenance, repairs, upkeep, property taxes, insurance, vacancy potential and management costs: and gives you at least 150% higher rents. It also makes eviction much simpler and does not entail the tenant needing to be on title in order to have virtually 100% of the benefits of ownership.

The main concept to keep in mind is that anything you give away in future appreciation will be much more than made up for in higher monthly profits and freedom from the costs and burdens of landlording. When I use this program (about 1,000 times so far) I look at the tremendously enhanced cash-flow and freedom from costs as a guaranteed advance on future appreciation (whether the property ever increases in value or not).

Furthermore, this process elimintes the concern (if you ever had any) about due-on-sale violation relaticve to the owner-carry, and any worry about the property ever being the subject of lines, suits, judegment, BK, marital disputes, etc. by the seller.

What I do is have the owner place the property in a trust in HIS/HER name, and give me 90% Beneficiary interest in their trust, along with an agreement to forfeit their 10% when I refinace in 3-4 years. I then advertise for a buyer to whom I assign a 50% interest. Then upon sale at the trust’s termination, 1) the loan is paid off, 2) I get back any moneys or equity I started with; 3) the 3rd bene gets back any moneys he/she started with; and 4) the remainder (net profit) is shared between us 50:50.


Re: a couple more questions… - Posted by Ray(OH)

Posted by Ray(OH) on December 20, 1998 at 18:56:16:

Before I could say wether it’s a good deal or not, I would ask some more questions:
-At 50K sales price, what is the FMV based on comps in the area?
-If you are going to keep it, how long before the roof will need replaced?
-What about the furnace? How old is it?
-If it’s an older house, how is the wiring?
_If these things might become an issue before you plan on selling, you better make sure that you are getting some equity when you buy or you will be paying out of your pocket
-Did you include a vacancy factor and advertising in your expenses? .When the house becomes vacant you need to figure the mortgage payment, utilities, cutting the grass, newspaper ad, etc.

Just my two cents (I know there are those on this board with a lot more cents than I have… at this time anyway:)

Re: Cash flow qestion on a rental? - Posted by Jimbob

Posted by Jimbob on December 20, 1998 at 12:47:00:


You didn’t mention in your first post the house was a VA Repo. You need to be careful here, as the old saying in real estate goes, things are not always what they appear to be. Make sure you will be able to rent the house out, sometimes they try to stick you with an owner occupied only loan, especially at 6.75% interest. Even though you will be putting just over 10% down, I find it hard to believe the VA will finance the house as a rental property for that low of an interest rate.

Don’t go around broadcasting that this will be a rental house but ask the question, “is this an owner occupied only loan?, for how long?”

Once you hear the answer, you’ll know how to proceed.


GO FOR IT - Posted by Laure

Posted by Laure on December 20, 1998 at 12:05:39:


Re: Cash flow qestion on a rental? Thanks Jimbob - Posted by Dori(Ca)

Posted by Dori(Ca) on December 20, 1998 at 11:45:34:

I’ts a pretty neat deal. This home is owned by VA, they have a special owner finance program at 6.75% with no MI - 30yr.

Re: Cash flow qestion on a rental? - Posted by Jimbob

Posted by Jimbob on December 20, 1998 at 11:37:51:


If the numbers you describe are correct, that’s not a bad deal at all, it’s basically a 30% return on investment not including tax deductions and depreciation. In my opinion thats the best kind of rental to have (3 Br 2 Bth Single Family Home), especially with owner financing at 6.75% interest? wow! Just make sure you dont have a short balloon period in which you have to pay off the seller, 7-10 years or longer would be ideal.

Monthly cash flow is important but long term equity build up is equally important, provided this house is in a decent area, sounds like you have a winner!