Good Rehab value but high cash investment + negative cash flow
1st investment on a Foreclosure of a 1 detached home in a 8 house complex in Santa Ana, Southern California, 2000sqft (larger than average for popular Southern California), built 1994, 4bd/3bt, very convenient to multiple markets, stores, one of the best I've seen, 70% Mexician population, B neighborhood. Listed for $440K , will try for $405K bid: add $35K rehab (got quote already from 2 contractors who toured the house w/ me so I'm quite sure of the cost) + $5K closing brings it to $445K all in. The conservative comps are $525K for similar homes not rehabbed in the area. So the instant post rehabbed value is a healthy $85K. I need to bring $115K cash (down, rehab, etc) to bring this property to rent condition.
$1800 monthly mortgage + $900 expense (tax, $200HOA, insur, vacancy, 8% mgmt, etc) = $2800 above average expenses. Rent will likely be $2600 = operating -$200 monthly.
Concerns:
- 2 months rehab + 3 months to rent = 5 months x $2800 = $14K
- $14K + $115K cash already put in = $129K , I have $145K in savings so 88% of all my money to operate at a loss.
- selling after 1 year (6% sell commission, 15% tax, etc) will reduce $85k added equity to about $15K profits.
Is the big increase in home value worth the risk of so much of my funds?
Does the after rehab value large enough to accept the high initial investment & negative monthly cash flow?