Continued story of a first time investor

Today I had a conversation with a mortgage broker. He painted a bleak picture. If your have been following this blog you know I want to get started in REI now that property values are low and there is a large supply of REO property.

My strategy was to get started with 3 and 4 units where cash flow could cover mortgage, taxes, hazard, and expenses plus still generate some cash. I was targeting $75 - $150 per unit after expenses and loan payments. These types of properties seem to be readily available, but funds are hard to come by.

An example of this is a 3 family in my target market it was listed for 188K I think it could be purchased for $170K. Unit 1 is a free standing 7 room 3 bedroom house, unit 2 is a first floor 4 room 2 bedroom and unit 3 is a second/third floor 7 room 5 bedroom. Once it was fixed up I would expect it to generate about $2800 per month in gross.

The mortgage broker said most of his lenders want at least $34K and a couple want $51K as a down-payment. They also want to see six month of cash reserves for all mortgages in the buyers names so in my case this would include my primary residence and the new investment property. This would be another 27K that I would have to have in liquid assets. Add in loan application fees, a 2.5% broker sucess fee the real estate broker wants, appraisal fees etc. I need to have about $80K in cash to buy a $170K building. Not a great cash-on-cash return.

Do I have a flaw in my analysis? Are others seeing the same thing? I am thinking maybe I should delay investing now and stock pile cash and pay off debt. Which seems to be counter to how you accumulate weath.