A friend of my family, who’s financial investing I am concerned with just delved into a two family unit in Northern Jersey. He has fully gutted and rehabbed the place beautifully and it is fully rented yielding $2100 per month.
Now, the financing is as follows… he used his parents home equity loan (which is currently at 4.4%) to FULLY FINANCE the investment of $260,000. He did not put a penny down.
He opts to pay $1000 each month… I tell him he is crazy because the numbers just don’t work. How much should he be paying ATLEAST per month and if he stays the course… just how screwed is he? Thanks
The taxes and insurance alone calculate out to be $558.33/mo. A 30 yr loan at 4.4% for $260,000 is $1301.98/mo. You didn’t mention how long the 260k was borrowed.
So that’s roughly $1860/mo making the above assumptions.
The short answer to your question is “pretty screwed.”
Do a search on here for the “50% rule.” For a 260K property, he should be getting MUCH more in rent than what he’s getting. Remember, even if you don’t put money down, it’s not a good investment if the numbers don’t work out in the end.
There’s only a $240/mo margin there above the mortgage, taxes, and insurance. What about property management fees (generally 10% of gross rents) or repairs, maintenance, tenant damage, vacancy allowance, utilities during vacancy, lawn care, office supplies (printer ink, paper, etc), and many more things that can be factored in?
You can see how the property management fees alone would eat up the rest of his margin. There’s not enough room here between the actual costs of operating vs. the rent coming in.