How Many Issues is TOO Much to Make a Deal Not a Deal?

[Michael Vu]

Hate to be at this point again in the due diligence, but here I am. Ready to learn.

I'm under contract on a duplex (first deal) and after having inspections, I don't know if this deal is worth it anymore. I'd appreciate some input from the BiggerPocket community! 

Here is my deal analysis:

PURCHASE
Purchase Price	$120,000.00
Down Payment	$24,000.00	20.00%
Closing Costs	$3,240.00
Mortgage	$437.00
INCOME
Monthly Rent	$1,200.00
EXPENSES
Property Tax	$267.00
Home Insurance	$85.00
Vacancy	$50.00	4.17%
Maintenance & Repairs	$60.00	5.00%
CapEx	$96.00	8.00%
Water & Sewer	$80.00
Gas	$0.00
Electricity	$0.00
Total Expenses	$638.00
DEAL ANALYSIS
Net Operating Income	$562.00
Monthly Cash Flow	$125.00
Cap Rate	5.62%
Cash on Cash Return	5.51%

So when I first looked at this deal, I saw there was long term tenants (so lower vacancy), the living spaces of the property were actually very nice for a MFH, and the price was attractive. It came out to around $125 / month cash flow, not GREAT, but for a first property it's a base hit and gets me in the game.

HOWEVER, here are the main issues that came up from the inspection that really concern me:

• Horizontal cracks in the poured concrete basement foundation on the back and left side of the house with what looks like attempts to patch it with stucco in the past
• Knob and Tube wiring throughout the entire house (concerned about getting insurance)
• Galvanized piping for majority of water supply lines (low water pressure throughout house)
• Leaking roof from chimney (need to install cricket) and fix upstairs unit walls
• One of the furnace flues is completely deteriorated and needs replaced, currently releasing some levels of carbon monoxide into basement
• One of the water heaters is from 1992
• Some water intrusion damage in main electrical panel and one of the breaker panel is a Pushmatic style

These are what I conclude as the big ticket items. Are these TOO many serious issues to still make this a good deal? It seems that this one has hit the mark on all the main issues (foundation/electrical/plumbing/roof). I appreciate any help/advice. I really want to jump in and get started in 2020. But I wonder if I'm jumping off a cliff here.

[Michael S.]

@Michael Vu - try this exercise to change your viewpoint on the deal.  Let's say the roof was new, the plumbing was up to date, electrical was to code and acceptable, there are no tenants, and the price tag on the property was $150k.  Would you pursue the deal?  If the answer is no, then you have your answer on your original question posed to the forum.  This property does not conform to the 1% rule if that was your goal (unless you can get the seller to drop the price over $25k).  In addition, the money for the repairs will either need to come from your pocket or a separate line of credit if available (assuming you are financing the deal).  I'd move on to something else, especially for your first deal.