Nearly impossible to cash flow?

[James Reed]

Hi all, first time to post to the forums.  I've been quietly studying and lurking for almost 6 months while stock-piling cash from the busy sales season for my industry(OND!).  I've now got some time to breath for a couple months(maybe) and want to take advantage of the lull in business.

I'm originally from Syracuse, NY and relocated to Nassau County, Long Island almost 2 years ago; the re-location with my company has lead to a financial standing that could never have been achieved back home, still getting used to it and need to start making my money work for me!

I've been looking at SFR and duplexes back home as the barrier to entry with liquid cash is fairly low. The area is still struggling to recover from the crash 10 years ago which has kept housing prices relatively low.(only my opinion as I'm sure some of you out there have had success in the area, but, it was part of the reason for my decision to re-locate) However, there are pockets of the city and surrounding areas that are "thriving" and (seemingly)worth investing in. I'm looking to take advantage of out of market investor "disadvantages" of not knowing the region as intimately as I do. The neighborhood I lived in for over 2 decades was full of young professionals and one of the last neighborhoods within the city proper limits to not become a war-zone; it's still actively fighting off the threat. Any out of state/area investor could be looking at disaster by venturing less than a block out of the neighborhood (I've now realized this is common in this industry)

All this being said, I found an REO ~1,200 sqft 3/2 SFR in a great part of town that has been on the market for over 4 months. Conventional financing available with a reduced asking price of $79,000. Comps in the area without any rehab are conservatively sitting at 100k. I've been working with a realtor that I've had a relationship with for years and she insists the property in current condition(not much value-add available rent-wise) should rent for ~$1,400 - $1,500/mo. Great, plug the numbers into a BP calculator and find that at $1,300k/mo rent the cash flow is negative. No problem, let's see if I low ball at $60k with 25% down. Negative. 50% rule is saying I should be cash flowing at over $500/mo... Taxes. Seemingly the silver bullet, $5,600/year. I adjust the numbers over 20 times and find that with almost any combination of low-ball offer and % cash down the best I'm going to get for cash flow is hovering around $50 /mo. A simple adjustment of CapEX and repairs from 15% to 10% each and BAM now we are looking at closer to $200/mo cash flow. Additionally, 10% management will always be part of the calculations so that number won't be adjusted to make a deal shinier.

I'm pretty risk-averse so I don't like the idea of lowering the percentages to save for CapEx and repairs to justify an investment. The neighborhood is fairly highly desirable, low turnover and vacancy rates etc. In theory I could purchase, attempt to rent out with just a few coats of paint, and sell for a profit if I didn't like the numbers. In hindsight, after analyzing a ton of properties, I've realized that many of the desirable areas of the city pose the same issue; high taxes with low opportunity for rent increases. This particular property, even if I could purchase for 30k, would not cash flow comfortably enough with the pretty standard percentages set aside for expenses.

Has anyone else found themselves with the same issue?  If so, what was your solution?  Do you give up on the area and look for better numbers elsewhere?  Are these somewhat special circumstances but still worth the investment because of low barrier to entry/"low"er financial risk? 

Lastly, because of my lack of experience I can't be confident in what I think might be red flags: Conventional financing, 20k under comps, new roof and looks to be in great shape... WHY HASN'T ANYONE ELSE PURCHASED THIS YET??  Too good to be true!  Going to be my biggest hurdle in getting started...

Anyway, looking forward to getting more involved in the community and hearing back from anyone with perspective on my situation.

Thanks!