Real Estate Opportunity... Am I Financially Stable Enough?

[Steven S.]

Hi all,

Tl;Dr: I'm recently graduated without much saved up. A 1/1 condo that's been in the market for a while drops to 100k with 350ish HOA, ~1350-1450 potential rental price. I'm about to be debt free, but don't have much savings, however I'm fairly cash flow positive. Should I go for it?

I'm fairly recently out of college with no student debt. A while ago I did some research into real estate. I decided to put the idea off because I had just bought a car, didn't have a lot of savings and it seemed like the top of the market. Nothing made sense given all the stuff I'd learned about what a good opportunity was.

However, now I'm within a month of paying off the car and I was scrolling Zillow as I do every now and then and I noticed a great place in a nice area. Well, let's say the nicest area of a generally less nice city, you could say it's a C- city, but a B+/A- area. Plenty of night life, restaurants, breweries, gyms, etc. But some crime spills in every now and then. Schools still aren't great. I've lived here for a few months now and was doing heavy research before I got here so I know the lay of the land.

I had noticed some places in this building a year or so ago but the price has been dropped far below what had been there before, all the way down to around 100k. It's a 1/1 and what I'm hesitant to mention is that it's a condo. I know a lot of people don't like investing in condos. But the HOA is in the 300s, and I figure no roof or hvac costs, right? Additionally the place comes with a nice gym and an (admittedly mildly forlorn) indoor basketball court. Also, it was built in the early 2000s, so I figure it won't be in disrepair and won't need too much upkeep.

The plan would be to live in it for a year and also save up some for future repairs, then rent it out. The HOA doesn't seem to frown on renting either since I've seen plenty of places in the building up for rent on zillow. It's one of the nicer buildings in the area with rents going up to 1450 for a 1/1. Using the 2% rule, that's 1.45% which isn't bad. As far as appreciation goes... It's the lowest price in the building and it's tax assessed at 170k, which isn't great for my property taxes but I feel like it bodes well otherwise. The price seems to be a "needs to go even at a loss" thing, not some other type of issue, but I'll make sure to inspect it thoroughly.

Now let's get into the less great part: the finances... I'm soon to be debt free, however, I still don't have much to my name. A 5% down payment + realtor fees would only leave me with only enough liquid assets for a few months bills or repairs if absolutely necessary. However, I have a stable, high paying job and so am fairly cash flow positive. The mortgage would be about 12% of my yearly income (after taxes). I'm sure I could get to 20% down in a year, with a good amount saved up for emergency repairs.

Let's say I go with a 30 year fixed, and decide to be pessimistic about the potential future rent at 1250. Zillow puts me at about 950 for principal, interest, taxes, etc. Subtract 125 for a property manager, and it's still cash flow positive by around 150, which keeps the balance for unexpected expenses even while paying off the principal. Not exactly 50% rule, but I figure the fact that it's a condo takes away a good amount of upkeep. 

Another idea: I could put only 5% in for the down payment and not keep paying till 20% in order to keep the value accrued 100% profit. 

What am I missing? Is this a crazy idea?