Opportunity at hand, scared to take the leap

[Kanwar Sodhi]

Hello guys, I've been on BiggerPockets for a long time learning and reading. I was a given an opportunity to purchase a place for $75,000 which would yield a monthly cashflow of $363 if I amortized over 15 years or $515 if I did 30 years both with 20% down and $2,000 in closing costs and estimated loan interest amount of 5.00%. This cashflow is after using the biggerpockets calculator and reserved 5% for vacancy, 10% for CapEx, 10% for Repairs, 10% property management fees.

The person selling it is a constructionist who buys distressed properties, fixes them up and sells them.
He's selling it as a turnkey, obviously, and also says he'll act as the property manager (taking 10%) and take care of putting tenants into place and stuff like that. 

Cash on Cash ROI is 25%

My fear is that I don't have a great job to support things like the roof going bad or the boiler going bad. These big costs will destroy me if they occur and I don't have funds to get these fixed right now. 
What would you do to insure that you're safe for the next at least 5 or 10 years from stuff going bad.

I know being a landlord is lucrative, people do it and people are making and getting equity, but how do I get over these fears so when I pull the trigger, the risk is less.

Thank you for your help in advance.

[Barry H.]

KANWAR - I have owned/managed "Low end" rentals for 14 years and I made my share of mistakes.  I had a day job and started into real estate when everyone was ATM'ing their primary residence to get money to do flips and buy rentals.  I did the same thing, but I did not LEVERAGE (hence, the lower end of the spectrum because I had minimal cash). 

It looks like you are wanting to dip your toes in with a relatively inexpensive property and a 25% Cash on Cash ratio is a good deal. My recommendation for you is that as much as you may hate to do it, DO NOT use a Property manager (PM). The best education you can get is to manage it yourself AND that bumps your ROI into a much better range. If you are purchasing in a location away from where you live, you really don't have that option, but I would still not run away from the deal.

Regardless of whether you manage or you have a PM, I recommend using a TENANT REPAIR DEDUCTIBLE for any repairs which come up (Tenant pays first $25 or $50 of any repair).  This way, your eventual tenant will not be calling you to change lightbulbs and unclog toilets (they will do it themselves).  $50 is a typical deductible on a Home Warranty also - which can be helpful to purchase in your first cashflow property.  It sounds like your Contractor/Seller is not likely to agree to purchase a Home Warranty to cover the property for a year (costs about $400).....BUT......if the Contractor is willing to put in a clause in the Sales Agreement that he (presuming a he) will agree to handle and pay for ALL repairs in the first year (or 6 months if he balks on a year), that gives you some leverage and insurance against a big surprise.  That, and assuring you have a basic hazard insurance policy will cover you pretty well against anything massive. 

I know I have thrown a lot of things at you, but these are things which have worked well for me over the years (after I learned from my mistakes).  

You are already tuned in to the MATH of a deal and most newbies get caught up in market frenzy, banking on the equity, the tax write-offs etc. You are focused on real ROI and it is reflective of a person who is looking to get into this industry with realistic expectations. You are gonna do great !!