First deal analysis. Can financing ruin a good deal?

[Meghan Cheek]

Hello BP community!

This is my first post so I first wanted to introduce myself! I have been listening to podcasts, researching, reading forums and BP books for the past year and would love your input as my husband and I look to embark on our first deal. We will be purchasing in Upstate NY (Capital District area). We plan to house hack using an FHA loan. I was originally looking at B class properties in B class neighborhoods with a max purchase price of 250-300k; however, we found a B+/A property in an A neighborhood that is listed for 420k.

Here are the details: 

Duplex built in 1999

Target Purchase Price: $392,000

Unit 1: 4 bedroom 1.5 bath rents for $2100/month

Unit 2: 3 bedroom 1.5 rents for $1900/month (we would occupy this side)

Total monthly income: $4000

Expenses:

Principle + Interest: $1950

Insurance: $100

Mortgage insurance: $253

Taxes: $720

Vacancy (5%): 200

Maintenance/repairs: $330 (1% home value/year)

Cap Ex (5%): $200

Tenant responsible for utilities

Total expenses: $3753 (this does not factor in property management as we will be owner occupying, however if I factor in property management at 9%, it would add $360 which would be negative cash flow).

Total cash flow $257

CAP rate: 6.4%

Cash on Cash return: 9%

Without property management we should have positive cash flow, given that I am estimated expenses correctly. Do these expenses seem correct? I am ok with the lower cap rate and COC return given the A neighborhood, I expected that the taxes would be higher for this reason. However, I am concerned about our financing. Because of the FHA low down payment, we will be highly leveraged, and the high monthly payment (and mortgage insurance) has me concerned for several reasons. It eats into cash flow, we may have difficulty saving for our next down payment,, and I am worried that the large mortgage will affect our debt to income ratio when we apply for a loan for our next property.

I am also concerned about paying too much for the property as there are no solid comps in the area.  I do know that the current owner purchased the property in 2015 for 370k.  With the housing market expecting to decline, I am worried that we will overpay.  

Any thoughts or opinions would be greatly appreciated!  I have learned so much from everyone here and now that it is time to apply the concepts, I want to make sure we make a smart decision.  

Best!

Meghan