Hello BP members,
I need your help analyzing this deal. I have a feeling what you'll tell me but I just need to hear it so I can walk away from it. It will be my first deal. I've been looking into MF 2-4 units but no luck here in Central California. Units with cash flow are in areas that I don't want to deal with. Units that are in good areas are asking for outrageous prices that just don't make sense to invest in. So I looked into SF home and hope that appreciation in good areas will outweigh the negative cash flow. Here's the house I'm looking at:
SFR 4/2 1800 sq ft, built 1994, tile roof. HVAC hasn't been changed.
Pros: excellent neighborhood, very low crime, very good schools (8-9 range), walking distance to elementary school, near hospital with new cancer center opening early 2018, new medical school to be built in 2019
Cons: negative cash flow
Asking price: $285k (down from 305K initially, seller has new home built end of 8/31 so they want to sell it quick)
Finance: 25% down, 4% interest, 30-yr, loan amount 214k, closing $8.5k, rehab $3k
Rent: $1,750
Operating expenses: 50.6% total + 8% vacancy
NOI: $795
Cash flow: -$225
Cap rate: 3.3%
If purchase price was $280k and I manage the property, then cash flow will be negative $47 with cap rate 4.1%. My wife and I work full-time and we live off of one salary and save the other. Even if we don't have renters, we can take a hit. I'm not sure if that would change anything. This house can be sold for $300 if they seller wasn't in a rush. So that's 10-15K in equity right off the bat for me. It is an upcoming area that I truly believe it will appreciate to the $320-350k in 3-4 yrs. My house is near by and it has appreciated by $60k in two years. We bought it new for $330 in 2015. Now similar homes are going for $390-400k.
Thank you for your time.
HN