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Updated over 7 years ago,

User Stats

153
Posts
74
Votes
Hau N.
  • CA
74
Votes |
153
Posts

Should I walk away?

Hau N.
  • CA
Posted

Hello BP members,

I need your help analyzing this deal.  I have a feeling what you'll tell me but I just need to hear it so I can walk away from it.   It will be my first deal.  I've been looking into MF 2-4 units but no luck here in Central California.  Units with cash flow are in areas that I don't want to deal with.  Units that are in good areas are asking for outrageous prices that just don't make sense to invest in.  So I looked into SF home and hope that appreciation in good areas will outweigh the negative cash flow. Here's the house I'm looking at:

SFR 4/2 1800 sq ft, built 1994, tile roof. HVAC hasn't been changed.

Pros: excellent neighborhood, very low crime, very good schools (8-9 range), walking distance to elementary school, near hospital with new cancer center opening early 2018, new medical school to be built in 2019

Cons: negative cash flow

Asking price: $285k (down from 305K initially, seller has new home built end of 8/31 so they want to sell it quick)

Finance: 25% down, 4% interest, 30-yr, loan amount 214k, closing $8.5k, rehab $3k

Rent: $1,750 

Operating expenses: 50.6% total + 8% vacancy

NOI: $795

Cash flow: -$225

Cap rate: 3.3% 

If purchase price was $280k and I manage the property, then cash flow will be negative $47 with cap rate 4.1%.  My wife and I work full-time and we live off of one salary and save the other.  Even if we don't have renters, we can take a hit.  I'm not sure if that would change anything.   This house can be sold for $300 if they seller wasn't in a rush.  So that's 10-15K in equity right off the bat for me.  It is an upcoming area that I truly believe it will appreciate to the $320-350k in 3-4 yrs.  My house is near by and it has appreciated by $60k in two years.  We bought it new for $330 in 2015.  Now similar homes are going for $390-400k. 

Thank you for your time. 

HN

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