Riverside, CA Duplex - Would you have bought or walked away?

[Dan Nim]

Hi All, 

Been lurking for a while and this is my first post. It has been a while since I have made a purchase but want to get back in the rental market but feel like a newbie at this again.

My current goal is to look for properties for cash flow opportunities to help supplement retirement income in the near future (4-8 years from now).

I recently backed out of a duplex (both 3bd/2bth) in Riverside with a gross monthly rent of $3625/month. unit 1 at $1,950 because it was recently upgraded and unit 2 @ $1675 because there was a tenant in place for the past 10 years so rents weren't raised over time).

The offer would have been $530k. I was going to use my HELOC for the down at 25% with a 5.1% mortgage rate at 30 yr. After running the numbers on a spreadsheet my yearly cash flow projection was $1,593 or $133/month, 5.1 cap, 1.2% COC Return. I used the following to calculate expenses: 5% vacancy, 1.16% property tax, 5% of effective gross income for repairs/maintenance , 10% property management, abt $1,100/yr gardening & utilities and $1000/year  for insurance). This does not factor in paying back the HELOC.

The neighborhood was a solid C/C+, maybe B- neighborhood with several other duplexes in the neighborhood tract, which I'm pretty sure were all mainly rentals.

I did not go thru with the deal because:

1. Saturation of rentals in the area and concerned that in a downturn this could be a problem competing for renters or increase supply depressing rental rates. (maybe I'm wrong about this assumption?)
2. A much older neighborhood that may not see much further appreciation potential?
3. I had some concerns my cashflow was too small of an amount to contribute towards paying down the HELOC in a timely manner. However, I believe thru the regular savings that I am building now for future real estate I could probably pay it back over 7-10 years. Instead of saving and having to wait 7-10 years to buy, I borrow now thru the HELOC and divert the savings to paying the HELOC down. (Anyone see issues with this or would you consider this a good strategy?)
4. Maybe jitters of getting back into the market after all these years and this being the first deal in years
5. A 2-3 hour drive to get to the property thus requiring a property manager since I work full-time, which cuts into the cash flow greatly, which is my primary goal.

Other things I considered is that in four years I could retire and possibly manage the property myself and recapture the property management fees.

I wanted to break free from the paralysis from analysis but opted to stay on the safe side. I accepted the fact that it was better to miss out on an opportunity rather than buy into a mistake.

My question to the community is would you have done this deal?

Did I miss something in this deal?

If anything this was all good practice for me to help me prepare to look at the next opportunity.

Thank you and look forward to your thoughts/comments.

Cheers!