Case Study with real numbers. To invest or not to invest, that is the question

[Georges A.]

Hey guys, I am a new REI looking to invest in my first out of state investment property. Been on the BP forums for a few months trying to grasp as much as I can and over a year now doing daily research about real estate. It's time to start making some offers! My plan is to buy a property every year until I achieve financial freedom.

Been looking in the Hampton Roads area in VA and have my eyes set on this property which we'll call Waldo II ;)

Here are the details:

Property type: 4Plex

List Price: 190,000

Income:

Unit 1: 500 Lease (1/2014 - Dec/2014)

Unit 2: 595 Lease (5/2013 - April /2014)

Unit 3: 595 Lease (7/2012 - July/2014)

Unit 4: 700 (Section 8) (Oct/2011 - Oct 2014)

My out of state Realtor took a look at one of the units and showed me a video and it looked in great shape. They have a policy that they wouldn't show the other units (although promising they're identical in quality) because they don't want to disturb the tenants until they have a ratified contract. If there's anything we don't like about the other units after seeing it, we can withdraw the offer. Of course I'll have that as a contingency in my offer and won't take the seller's word for it

Pass 50% rule of thumb? YES - should cashflow around +$200

Pass 1% and 2% rule? YES

Rehab budget: 10k

Closing cost estimation: $9500

After running the numbers. I am inclined to pass on it as it does not meet my personal goal of total ROI > 14% (my numbers show 9.14%) and a Cash on cash > 10% (currently 6.2%) and these numbers were calculated on the fact that they accept my low ball offer of 170k!

I think what's killing me in the apts < 200k that I've been checking is the low rentals they have and leases that aren't due till the end of the year which makes it impossible for me to get in , renovate a little, and charge higher rents. Do I have really high standards ? because I keep reading on the forums that +200 cashflow is worth considering, but for me anything that low isn't worth my time! Am I being realistic?

PS: My plan as I have heard it on the podcasts is to install water meters and have the tenant pay their own water. How do ppl feel about that?

Attached are the last 3 yrs of property mgmt statements:

[Robert G.]

Quick pass.

Cap rate is about 8% (and that is buying at 170k, as you mentioned).

4 units means you should be looking for a minimum cash flow of $400, and you stated this deal offers only $200.

You'd have to get the property for about $145,000 to make it worth pursuing, IMO.