Would you do this deal? (Follow-up from prior discussion)

[Roxie Kim]

I received some amazing feedback in another discussion I started here:

https://www.biggerpockets.com/forums/432/topics/584285

All the advice I received was great and I'd like to give a warm thanks to everyone who responded.

So as a follow-up, I just thought I'd post a more direct question with actual figures. So independent of my concerns with purchasing a C level, 8-unit apartment (this would be my first apartment), can you provide me with an opinion as to whether or not this property is something that you would purchase? This property is located in central California.

Sorry for sounding like such a newbie (I am one!), but part of me is worried that even with a PM, this property will turn out to be a big headache...and if I decided this was a mistake and wanted to sell, it would be impossible without taking a major bath. I know the idea is to make your equity in the purchase price, but as a passive investor who is busy with a full-time job, 2 kids and 2 dogs and a 104 year old house, finding great deals is just not practical for me. But still, I was able to negotiate the price down about $40K from the list price....which I was very happy about. And quite frankly, I think that within California, I feel as if this is the last piece of property listed on MLS that fulfills the 1% rule.

Part of me is weighing whether or not I should just pass on this deal and just purchase 5 or 6 nice turnkey properties (sorry, I know that's a very newbie-ish comment to make.. and a total disregard for proper asset allocation). I'm so used to my nice, cushy, low maintenance properties here in Los Angeles with perfect tenants that probably contact me no more than once a year for very minor issues... I feel that not only do I need to evaluate whether or not I want to invest in a C property, but whether I should invest in multi's at all.....especially one in California that makes the eviction process very complicated and costly. There are small private law offices in urban areas of Los Angeles whose primary source of income is taking 40% of the cut on 'cash for keys'  money from tenants who don't pay their rent. So I thought if I posted the numbers on this forum, I might be able to get some perspective on my potential purchase.

The expense figures below, with the exception of capex and vacancies, are from the actual P&L's received from the PM, averaged out for the past 12 months. What I did not include were the legal expenses associated with two recent evictions as I figured that a 55.6% expense ratio would probably be pretty accurate over the long run. Capex and vacancies were both estimated at 10%.

So far, we've done the initial walk-through and the property was a little better than I expected. Right now, every unit is rented and all rents is paid up to June (estoppels are still pending). Each of the units has central A/C, laundry hookups and each of the units I saw, other than some minor freshening up, did not appear to need any sort of major rehabbing. The property inspection is still pending, but I figure any issues that come up can be negotiated to a certain extent.

Also, keep in mind that this property is located in California, just two hours from where I live. Compared to some parts of the US, the figures might not look too impressive. But purchasing an apartment somewhere in the mid-west would be out of the question for me as I would not want to fly out. Part of the appeal of this property is the fact that it's relatively close to me as well as the potential for capital gains 10, 20 years down the line. 

Thanks in advance!

Purchase price	$ 510,000
Purchase Closing Costs	10,200
Estimated Rehab Costs	5,000
Total Project Costs	525,200
Downpayment (36.9%)	188,000
Loan Amount	322,000
Loan Interest Rate	5.250%
Total Cash Needed	203,200
Gross Rents	61,440
Monthly Rental Income	5,120
Expenses
Advertising	25
Gardening	66
Insurance	250
Management Fee	512
Pest Control	50
Property Tax	638
CapExpense	512
Security System	280
Vacancy	512
Total Monthly Expenses (55.6%)	2,845
Monthly P&I	1,778
Total Cash Flow	497
Performance Metrics
Monthly Cash Flow	$497
Cash on Cash Return (ROI)	3.17%
DSCR	1.28
Purchase Cap Rate	5.35%
Proforma Cap Rate	5.20%
1% Rule	0.97%