New to REI in California!

[Lizette Paredes]

Hi there! We are looking to get into REI this year to start building some wealth and eventually gain some financial independence. We have some equity in our house that we'd like to cash out, taking advantage of currently low interest rates on a cash out refi (3%), and use the money for a down payment on an investment property that generates some cash flow (at least $200/month), and has a good cash on cash ROI (>5%). We live in California and figured we were priced out of this market, so were looking at Texas, but recently have started looking at California's Central Valley for multifamily properties. Nowhere as "cheap" as the SFHs I'd seen in Texas, but a drivable distance in case of any issues, and just generally less daunting than investing in something thousands of miles away sight unseen.

So first, a little about us.  We're a couple in our early 40s, with two young children.  We both have careers in the social services sector, so not high income earners, and I've also taken a break to raise our kids (though I'll be returning to work part time soon).  I'm the one that's spearheading this whole operation, since my husband works full time, and I have been reading, listening to podcasts, researching, crunching numbers, etc.  But I feel like I could stay in this "learning phase" forever, and it's hard to know when I have enough information and it's time to take the jump.  

We started the refi process to get cash out of our house for a down payment, but currently paused it because of the uncertainty of covid, home prices, not narrowing down our market yet, etc.  I don't want to be paying a higher monthly mortgage payment, with additional interest charges, for money that's just going to be sitting in a low-yield bank account while we figure out our next move.  

I realize I'm probably all over the place with this post, so I'll try to get to the point.  Is something like this a good deal?: 

https://www.zillow.com/homedetails/1829-Conifer-Dr-Modesto-CA-95350/300253380_zpid/

With the numbers I plugged in to my spreadsheet, I get about $200 in monthly cash flow, and a little over 5% cash ROI. That's assuming each of the two units rents for $1200 (my estimation based on a quick search, could be totally off), and a vacancy rate of 8%, as well as $200 subtracted for monthly maintenance (and of course taxes and insurance). This does NOT take into consideration the increase in our original mortgage payment after the refi, which could be covered by taking in an additional tenant (we house hack and have one more bedroom we had left as a guest room, which is just sitting empty thanks to covid).

This property is just an example, but I'm trying to find out if I'm moving in the right direction, or not.  We're looking to buy and hold long term rental properties, eventually generating enough passive income to partially retire.  

Aaaand I just realized I am not including property management fees, which would pretty much negate the monthly cash flow.  See?  This is why I need to write this stuff out.  

Anything else that I'm missing?  Any other tips or direction some seasoned and generous-with-their-time investors out there would be willing to share with me?  How much do you trust Zillow's Rent Zestimates?  I also check similar units on apartments.com, but honestly I feel the best scenario is to buy a place that already has tenants in place.  Any issues I should foresee with that?  

Thanks and looking forward to learning from you guys (California)/y'all (Texas)!