Newbie Deal Analysis: Do I have a good deal?

[Kevin Lutz]

I have a 9-5 job, make good $$, but looking to get started into passive real estate investing to build cash flow away from my portfolio which consists predominantly of index equity funds (I am in investment management so I have a lot of exposure already to the stock market).  My co-worker who is in a similar boat as me has a townhouse rental property in Lincoln, NE (we are in SF) he has owned for 15 years.  The original RE developer recently bought the remaining development properties back from another investor and is looking to sell his 6 units (3 townhouses, with 2 units in each, each are 4BR/2BA).  My co-workers experience has been a good one, about 3-4% in annual maintenance costs.  About 2-3% in annual rental increases.  Vacancies have been about 4% per annum over 15 years.  Here is the math that I've worked out:

Cost to buy each unit: $125k x 6 properties (my portion is 50% of all of these numbers).  Home appreciation over the last 15 years has effectively been 0-1% so we're not factoring in any home appreciation in our analyses.

Rent: $1225/mo per unit

Management fee: 7% (looking to work with them to get a volume discount down to 5-6%)

Financing: 25% down, 4.75%

Closing costs: about $3k per unit (looking to work with a local lender that can be more flexible and reduce closing costs)

Cash on cash return (not include tax benefits): 7-9% (assuming current tax rates, 1% of unit values for maintenance, and average utilities for last couple of years)...obviously this can change wildly if stuff really goes well or poorly as it relates to vacancy, maintenance, etc.

I feel like we're in a little bit of analysis by paralysis given our day jobs has us over analyzing and saying no to most investments, however, we both want to establish some cash flowing RE investments as we look to further diversify our portfolios.  We can make the math work or not work depending on how conservative or aggressive we want to get with our assumptions.  Given this is really my first foray into passive real estate I guess I'm looking for tips on how others get over that initial inertia.  I also want to sanity check that this is an interesting opportunity.  We are open to looking elsewhere (suggestions welcome) but we are really looking for turn-key, passive investment opportunities matching or besting long-term stock market returns.