Analyze My Deal - think I already know the answer!

[Dan P.]

Hey Everyone,

I am a residential mortgage lender taking my first dive into real estate investing. My main focus is cash flow to grow long-term passive income. I have always wanted to buy a 4-plex as my first investment property, but now I am analyzing another option. I currently owner-occupy my SFR in the SF Bay Area, and am trying to decide whether to turn it into a rental or sell it. I purchased it in 2014 with an FHA loan, and I plan on living here another 12-18 months before buying a new primary residence.

I could refinance into a 3.75% conventional and drop the PMI - current balance is $238k and value is right around $340k.

The numbers would look like this:

Total operating expenses: $652.50	Mortgage expenses: $1,102.22
Vacancy:	$85.00	Repairs:	$85.00
CapEx:	$136.00	Water:	$30.00
Garbage:	$30.00	Insurance:	$48.00
P&I:	$1,102.22	Property Taxes:	$238.50

The mortgage plus all expenses comes out to $1754.72, and I could probably rent it out for about $1700 today. Now I know I don't cash flow positive off the bat, but I am trying to determine if this would be a good long-term investment with the way rents are trending in the Bay Area. I assumed a 5% income (rent) increase per year, 3% property value increase per year, and 3% expense increase per year.

Using these numbers, the BP calc shows that I would be cash flowing $150/mo by year 4 and $700/mo by year 10. Is that worth it?

Do my numbers look ridiculous? Does this look like a potential deal, or am I forcing it? Or should I sell it and keep the cash towards a multi-family property in the future?

Any feedback is welcomed, and I thank you in advance!