Due to the lack of financing information and expenses, it is difficult to say whether you will actually have positive cash flow or not, but appreciation alone is not a very good reason to invest especially if you are in a negative cash flow situation.
So, first you should determine whether or not rents will actually be able to support expenses. If your in the black, then go on to the next suggestion otherwise keep looking.
Since you are probably looking for a long term buy and hold strategy where appreciation and mortgage reduction will be your basis for returns, I would look at the following factors before you decide.
1. Is the location near a crime riddled area sometimes referred to as a crime zone? Unforntuately, the lower socio-economic trends affect long-term strategies so I would go to the US Census map or a soci0-econmic mapping service to gauge longterm trends. You do not want this property sitting in a future crime zone becuase your appreciation will likely be curtailed.
2. Since it is two-story, is a majority of rental pool thirty-five and under? Generally, you will for 35 and up prefer single-story.
3. Small lot usually means not kid friendly and this could limit your pool of renters. Is there a nearby park?
4. Are there a lot of rental vacancies? When your faced with tight cash flows, you need a property that will rent quickly.
5. Since your buying pre-foreclosure, make sure you have a quality home inspection take a close look at structure as well as the condition of the HVAC. The last thing you need is a surprise.
-----------------------------------------------------------------
With short sales, you have nothing to lose. If you do not get it for the price you want, you still have another shot at auction and another third as an REO.
Do not be too hasty and make sure you do your homework. Just becuase it is a short sale does not mean it is a good deal. I cannot tell you how many times I have seen a short sale counteroffer come in high and it sold at auction for 20% less.
Second, if the lender countered at $119K, where was your intial offer? Also, it is the lenders job to counter, so I would recounter at a lower price.
For instance, say you started @ $100K and they came back @ $119K, then I would go back no more than $109K. They are going to lose this much in foreclosure and REO costs. Remember, your doing them a favor.
Come back with more specific on your offer and whether the property is listed or not.
Good Luck!
