Please help me with my analysis / plan

[Dan N]

Wow.. where to start. I am looking at some rental property for long-term buy and hold that is not in my hometown. Reason? Around here, its the 0.8% rule, not the 1% to 1.5% that makes the numbers work so much better.

I am having a hard time with the concept of cash-flow versus growth investing. *If* appreciation on properties in my area were > 5% per year, I would be content to break even after all expenses - this way I could invest close home, where a $150k house rents for $1250/mo. However, I hate the thought of putting my neck on the line for what is essentially gambling, without getting that nice monthly inflow that makes it all worth it.

So, I am thinking of investing in a town about 2 hours away. Its got solid demographics, low crime, average appreciation potential (nothing exciting), and a fairly solid rental market. Plus, property values aren't out of line relative to rents. I have spoken to several realtors in the area and found two important things: Renters have sufficient income to purchase a house if so inclined.. so multifamily housing is preferred for investing. Also, the cap rate on such housing is 9 to 10. SFH that cost ~$100-120K rent for $1000/mo, whereas 1-2 bed apartment units go from $400-700/mo rental.. roughly.

In my area, I wouldn't think of buying a multifamily because of several investors I know buying them in 'seedy' areas and having all kinds of tenant/drug/crime issues. Thing is, this other town is very different.. its a big small town, and there arent any 'scary' areas at all. Low income pretty much means students and families starting out.

So I have been searching, and found what I believe to be a really nice fourplex, with good fundamentals. Here are the stats.

Asking Price $169,000.00

Down Payment $0.00 0
Loan #1 $135,200.00 80 6.75% 30yr No ($876.00)
Loan #2 $33,800.00 20 8% 20yr No ($282.00)
*I would be using HELOC funds for loan #2.. 10 year draw, 20 year repayment. I am not sure how to factor in the interest deductability and if that should count towards/against the property.

Rental income total: 2045/mo (24,540/yr) - actual
Taxes: 1764/yr - current (need to check assessed value)
Gas: 2832/yr - actual
Electric(Common area only): 528/yr - actual
Water: 480/yr - actual
vacancy allowance: 5% - hypothetical
Insurance: 1000/yr - hypothetical
Maint: 400/yr - hypothetical
Trash: 480/yr - hypothetical

Plugging all this into the analysis tool, I get:

NOI: 16233
CapRate: 10%
Yield: 14%
BTCF: 2320 ($193/month)

So, a couple questions on this analysis.

1) I only put in for the 'major' expenses. What are some of the minor ones I should be looking for? Lawn mowing / snow removal comes to mind. Maybe the tenants can lift a shovel...

2) Is my mortgage rate of 6.75% for 30 year fixed on a 4-plex reasonable? I have stellar credit (>800) and make about 2.5x the average income in my area.

3) Should I or should I not use the HELOC to fund 20%? Should I pursue a traditional 2nd instead, and if so, what rate can I expect?

4) I didnt put anything in for property management. Area fees are typically 6-7%. I am hoping to save this expense. Am I being reasonable.. Can you manage a 4 plex from 2 hours away?

5) Maintenance.. I estimated at $100/unit/yr. This seems low, but the building's internals are updated. No idea if this is realistic.

So many variables.. there always are though, right? Whats the math telling me.. is this a deal, or do I need some concessions / terms / price reduction to make it work. Would you do it? Why or why not?

Part of me wants to jump all over this.. I think the best I can do near my house (<30 min) would be to buy a SFH fixer for ~120k in a semi-marginal area, put 10K into it, and get $1200-1400/mo in rent. Unless I go interest-only and put down 10% cash, I would be pretty much breakeven (using the analysis tool and assumptions). That doesn't really seem worth the effort to save a few hundred bucks on taxes.. argh. Nobody said it was easy :)

Thanks (in advance!) for the help.. some really astute minds here.