Posted by Jim IL on October 23, 2000 at 20:42:40:
Yes, you are looking at this wrong.
But that is okay, at least you are looking.
So, lets look at what info you gave us:
You buy for $55k now
Rental income BEFORE expenses: $696/month
You said you feel this will only sell for $60k in 5 years?
Where did you get this number?
I would think that even with minimal appreciation it will sell for more than that.
But, just assume $60k is right.
YOU will not pay the $30k, your tenants will.
Assuming your vacancy rate is LOW and your other expenses are small. (Probably not, but for the sake of this post, we’ll stick to that.)
So, you are into the home for NOTHING down.
You collect cash flow every month of $268 ($696-$428=$268)
When you sell, the payoff is $54.3k, and you sell for $60k (Again, this seems low to me)
So, leaving the rent as is, and no other unforseen expenses, your profit is:
$268/mo x 60 = $16,080.00 cash flow total
$60k - $54.3k = $5,700.00 (minus closing costs of course)
I am not sure why you see the $30k added on to the loan balance at payoff?
This appears to be where you are lost.
And, remember when you buy a rental unit like this, you MUST allow for repairs, maintenance, vacancy, insurance and taxes.
You also do not mention if it needs repairs now, and what it is worth?
What is the FMV?
Is it vacant?
If not, what are the tenants like?
What are the market rents?
Can you raise the rent?
Other properties like this in the area?
What do they rent for?
what is your market like?
A ton of questions, and frankly, before I got a loan on my own residence to buy it, I’d want ALL the answers to these and a few more questions.
Anyway, hopefully this got you started and cleared up some confusion without adding too much more.