Finally got my first deal under contract, but start self doubting

[Grace Wang]

I saw a expired listing for a 4-plex on MLS, and the asking price was 285,000. The first thing jumps out at me was this is the first 4-plex in the area that is under 300,000, The quoted rental income was 780/unit/month ($ 3120). With 50% rule, a potential cash flow would be roughly $560. It meets my criteria such that we will end up $100-200/unit/month cash flow.

I called up the listing broker and asked why it didn't sell? He said the last offer was a full price offer, but requesting the seller to do new exterior/interior paint and new carpet. The seller refused and the deal fall through. When I tried to offer a low ball price of 220,000, the broker instantly said "save yourself some time, it won't work" and hang up. 

I went to the pierce county assessor (the property is located in Tacoma) and found out the owner's name and address. He actually lives in one of the unit. Luckily there is his phone number on MLS. I called him directly and expressed my interests knowing more of the property. Long story short, after two weeks of back and fort. We agreed on price of 268,000 (17,000 off the original price). I am thinking it can be deal.

There are also a couple upside potential beside the cash flow:

1. The current rent is below market rate (the building next door, exact style, same year, but more updated), is asking $890/month

2. The seller is paying for water/sewage/garbage, the building next door is charging tenant extra $75 /month for utility 

3. The building condition is good, no immediate repair /updates required if I am planning to rent at either current rate or up to $800/month. If I do some updates such as new carpet, new paint, there is room for rent increase. 

But then I ran the number again using the BP calculator:  counting 8% vacancy rate, 10% for each maintenance and Cap expenditure,  10% management fee, and $10,000 for new paint/carpet it will leave only $168/month with the current setting. 

If I start charging tenant $75/month for utility and increase rent from 780 to 800/month, I will be getting $500 cash flow, but the cash on cash return is still only 7.77%.  I could potentially do more updates and increase rent to match the building next door, but it will take time, and I might lose tenant. 

 I am kinda doubting if this is a deal or not now? 

Any input would be very appreciate! 

By the way, address: 7611 9th AV Ct E, Tacoma, WA 98404

Thank you!

[Charlie Fitzgerald]

It some down to your why? Why are you buying it and what are your plans for the asset if you buy it.? How long are you holding it? When you factor in appreciation, depreciation, cash flow, etc. at whatever levels you think you will realize, are you happy with that? Can you match that performance with any other known investments with the same risk/reward quotient. People get too hung up in the "golden rules"...2% of this...cap ex of that...COC of this...ROI of that... For me, fundamentally...if the transaction meets my goals and my "why" within the time line I intend to have the asset. It's a deal.

I've bought negative cash flow properties that out performed other peoples positive ones because I hell it longer and sold it at the right time.  It's not ALL about cash flow.

Hope this helps.