Struggling With First Opportunity Decision

[Frank Gucciardo]

Hi All, I've been lurking here for a while and absorbing a ton of great info.

Here's the situation.

I've been in the education phase and looking for B&H opportunities for the last 3-4 months. I've read up on the financial models and have built a decent spreadsheet to analyze properties. I may have come across a decent first deal but would need to leverage my 401K (loan) to cover the cash at closing.

Details:

Duplex (2 bed / 1 bath each)

1 Apt - long term rental @ 750mo
2 Apt - Renter left less than a month ago and PM is showing - renting for 750
According to Rentometer and local knowledge, I believe the rents are about $100-150 lower than they should be (being conservative).

Property lists for 129K (was on the market, off market, agent is going to list it again soon)
Owner moved to FL for biz and is unloading local properties (Hudson Valley NY). Agent said that the owner would go down to 110K.

I've run comps on similar sold properties and only came up with 2 in the same town. The comps support a FMV of 95K. (All #'s below assume I can get the deal for this price)

I'm shopping a few banks, but one trusted local bank quoted me 25% down and 2.75pts for a 4% rate.

The deal appears to flow at ~250mo total at the current rate of $750/mo. (im including vacancy, rental fees, insurance, repair reserve, etc.. - the agent had most of the numbers so they are fairly accurate)

Cash at closing (estimate) $32K (DP, Closing Costs, Cash for make ready)

I have 12K for investing (not including my personal reserve that I'm not touching). Therefore I would have to come up with an additional 20K.

My best option, I believe, is to take a $20K loan out of my 401K @ 3.25% interest. If I do this though, it screws up my cash flow until I pay off the 401K loan (-$40/month cashflow). I've not included tax savings so that may help. I should also be able to accelerate paying off the 401K loan in Nov with my annual bonus (not a guarantee but pretty darn close).

What I'm wrestling with is, do I take the short term crunch on cash flow (anywhere from 6mos to 2 years) in order to get into this deal. I'm paying myself back so I don't know if I really should consider the 401K Loan payment when figuring cash flow. This one is a real dilemma.

If the #'s don't work I have no problem walking away and coming back in Nov when the bonus comes in and I'll be in a stronger cash on hand position.

Sorry for being so long winded but I wanted to get the facts out there so you guys can give me your opinion. Please let me know if there is any other data you need.

PS.. I'm not considering the higher rent I could possibly get. I stuck to #'s that are real for now.

Thanks.. Frank