And even if there is a 5% decrease (or worse), that still wouldn't phase me, because price appreciation isn't a big factor in my strategy -- cash flow is.

The response now is if you want to wait, tell them you need to wait a year or two until you've got the fund to do it properly.If you do renovate it, afterwards when they renew their lease, you can increase the rent a bit to factor in it now has 2 bathrooms.

They take calculated risk with loans and factor in cash reserves for the rainy days.

More often then not, location is the primary principle that will factor into rent.

However, deciding between building v/s rehabbing, depend on many factors but just comes down to what’s most suitable for you in achieving your future business goals.

The "you must update to new codes" issue would mostly be the electrical so since that is something you are already doing, most of your risk factor is taken away.

Offer price: $170,00020% conventional, 30 years, assume 4.5% interest for rental propertyAssume down payment, closing, minor fixes = $40,000 cashMortgage & Interest: $689Property Tax: $218HOA: $241Insurance: $60Property Management: $100Maintenance: $50 <-- efficient ~1,000 sqft condo, HOA covers all exterior (also water and basic cable)Vacancy: 8.33% ($131)Total average monthly cost: $1,358Total average monthly cost w/ vacancy factor: $1,489Expected rent: $1,575Averaged expected cash flow: $86 w/ vacancy impact; $217 w/o vacancy impactCash on Cash: 2.58% w/vacancy; 6.50% w/o vacancy <-- how does that "feel" for California?

With the units being only 600 square feet, this $80,000 seems more than adequate.Total Investment: $450,000Monthly Rent: $4,800/month ($600/unit)Monthly Expenses:Vacancy: $144/month (3%)Property Management: $400/month (Plan to self-manage but factoring an allowance here)Maintenance: $400/monthProperty Tax: $300/monthInsurance: $200/monthWater: $400/monthMisc/Other: $200/monthAnnual Net Operating Income: $33,072Total Investment: $450,000Cap Rate: 7.35%Annual Interest Expense: $13,950Annual Profit: $19,122Let me know your thoughts! 

Credit is a huge factor for approval.As for renovation, only if the numbers are there.

How will we know if the treatment worked?