Should I walk away?

[Hau N.]

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

[Graham Nash]

In the beginning of the thread it sounds like you almost want to be told to pass, or walk away. 

However, the numbers and responses you've given make it sound like you would like to be told to pull the trigger. What I'm hearing are solid - highly responsible financial habits, very familiar with the local market and aware of the possible downsides. 

Have it inspected, and pull the trigger man... If you find it's not for you, sell it. Even if you take a loss, at least you know. 

Are there any local meet ups/ investors who could ease your mind about the purchase?

You got this,

GN