Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?
Hi. A couple questions so I can understand how you evaluate transactions. What is your hurdle rate for you to make an investment? Are you a CoC investor or IRR driven investor? Using amount of leverage are you using in your assumptions to achieve a 10% CoC return?
And I'm my opinion, any project that can give you north a leverage 8% CoC return is a very strong project. That said, it is all about your assumptions that you're using in your model. My friend with 20 year of real estate experience was modeling all his properties wrong before I helped him. If you can answer these questions for me, I'm happy to help you as well.
I get it - My moms a fantastic agent in the Cleveland market! Every agent has their niche. From their side it’s emotional right - there’s their livelihood on the line.
From the investor side it’s the same way it’s my livelihood. If I spot a property she doesn’t Ill have her let me in. If another agent knows my portfolio and finds a deal - I love my mom dearly but she takes the backseat on that deal.
Any agent/or investor can’t be expected to know every neighborhood, every street, every wholesaler that’s not realistic. Some agents who work in a more traditional environment may not even be know what buying a contract, seller financing.
If you need help walking through the scenario I’d gladly connect. PM me
@Antonio Cucciniello find another market, North east you are not going to find double digit net caps. 10 -15% net caps are to be had if you know where to look
@Victor Vella the agent thing is what trips me up. Mine is a close family member. Having other agents search is a tricky road for me to navigate.
I get it - My moms a fantastic agent in the Cleveland market - and lives 2 blocks over from me 😑. Every agent has their niche. From their side it’s emotional right - there’s their livelihood on the line.
From the investor side it’s the same way - it’s my livelihood and at the end of the day it’s business. If I spot a property she doesn’t Ill have her let me in. If another agent knows my portfolio and finds a deal - I love my mom dearly but she takes the backseat on that deal.
Any agent/or investor can’t be expected to know every neighborhood, every street, every wholesaler that’s not realistic. Some agents who work in a more traditional environment may not even be know what buying a contract, seller financing.
If you need help walking through the scenario I’d gladly connect. PM me
@Antonio Cucciniello NY NJ unless upstate NY around college areas, are difficult markets to stary in with low down payments and cash flow. Often cash flow requires larger down and a lower than expected ROI% Also although I commend your 20 property analysis you need to do 5x that and if in fact you found 2 or 3 that cash flow your % find is actually pretty good. Keep in mind a criteria list some absolutes that shall never be broken.
Such as demographic of area, crime, pool of tenants. I would prefer to have a property in a good area with a lower return and a value add play to over time to raise the return. Rather than a higher cap rate at onset only to battle tenants, non payment, eviction...
Alternative plan in starting is to, study analyse, go to meet ups, meet up with BP members & Facebook real estate group members close to you. Through that comes education, friendships, mentorship and ultimately a partnership, maybe local maybe better returns and criteria out of state.
100% agree. List price matters very little. Almost every property has a price where it makes sense. Offer what works, don't get emotionally attached, and keep making offers. And don't let your realtor scoff at your offers. Even the best Realtors are still self interested to a degree and may try to persuade you into higher offers just to get a higher commission, close the deal, or avoid having to make so many offers. (Though know what's reasonable and don't burn out your realtor).
@Antonio Cucciniello How much are you calculating for downpayment? Here I can find cashflowing deals in C areas with 20-25% down figuring in required renovation costs (and the properties available that are good deals almost always need some love).
Are you referring to the Plaza area or North KC? I’m familiar with both and they have been rising value. Investors have been pouring money into those areas. I’d be happy to assist you!
What are you using to compare? I use a spreadsheet that has some calcs built in. I made it myself and over the years it’s helped me make money. Nothing too crazy but when you break things down on the numbers side them compare condition it helps.
One thing I would do tho. Run numbers on so many deals you can do basic stuff like NOI in your head.
I Don’t rely upon my #s in my head for offers but i do go through with the seller on site Colombo style. I ask what the rents are. Expenses. Taxes. Then I go through the whole thing. That’s usually pretty good at rooting out bs.
I like to make offers on site.
Little trick for you. Used it yesterday.
Once you’ve run the numbers on so many deals you know a deal when you see it go out to the property walk it with the owner. Then find the biggest problem area in the house and make your offer there.
Make sure you’ve run the numbers at home first tho.
Yesterday I was about to make an offer on the street but noticed the owner had nice shoes on. So I asked him to go back to the basemt with me where he had a sewage leak. I spent s few mintutes poking around and my offer which was less than what I was willing to pay was countered with his offer being much lower.
Example. The property is worth 600k. Needs work, but it’s rented and cash flowing.
I was willing to pay 420. I asked how much he wants. 375. I said I’m not sure that it’s for me.....could he go lower? Yes 300k. That’s when we left the basement.
That’s nuts. I had a property that has tenants bought for 75k taxes taxes were almost 6%.... sold it bc taxes were killing me but as soon as I did they lowered basis and I learned my lesson.
Buy low, get down to that assessors office with the contract and grieve, grieve grieve.
I was driving around near where I live, and I saw this row of duplexes. Every single one had cars parked in front and it looked like the exterior maintenance was taken care of.
Looked them up in the MLS and started running rent/sales comps on them. One was just recently bought/renovated.
@Joseph High I have whole streets full on ranch duplexes where I live. I plan to start hand selecting and sending hand written letters. I hope to gain some traction. I should probably have my wife write them though because I write like a preschooler.
Welcome to NJ. I'm experiencing the same issues as you. I've been looking for a bit longer and offered on about 10 properties with nothing so far. Multi 2-4 with house hacking involved.
Problem for me is I'm using VA loan to start with and it's not a seller's best friend. I've considered going to PA but I dont want to do long distance PM so I'm still on the fence on that. NY is just as bad with tenant laws and property taxes. Either you grab it asap when it comes online and prepare to pay over asking or wait for the season to change.
I'm hoping to grab a single, not a home run, during the holidays. Good luck!
So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?
"Good" deals are often made and not "found", depending how you define "good".
Running the numbers is often a first step to approaching the seller. The seller says they want $X, but what do they really need? That's where your communicating and negotiating skills come in. Until you've actually met the seller and discovered their REAL needs, "$X" is just a number, and an asking price, at that.
@Antonio Cucciniello Most markets right now are way overpriced for investment property. 4 plexes selling for double what they should to be profitable. Don't just join the bandwagon and buy whatever is available. Keep doing what you are doing. Run the numbers, when you find one that is good for you, then make an offer. Maybe if you have the opportunity in your area look into doing a house hack which should help get a better return. I have analyzed over 500 properties, in different markets, made offers on about a dozen or so and have only purchased 3. I like to be picky and will only invest for the returns I want. My numbers are not your numbers, we all have a return we are willing to take. In the meantime, keep analyzing, even if they are bad deals, the practice will help you be more confident when you find the right one.
So I am looking to purchase my first property in Ewing New Jersey (after looking at multi family (2-4) in other parts of jersey and NYC), and after doing about 20 calculations for rental properties in the area, and it seems that I have only found 2-3 that even positively cash flow and 1 that would give a significant amount of cash flow (over 10%). Being new, I am wondering if I am being too overprotective with some numbers for the costs for some homes, or is that on average How difficult it is to find a good deal?
Antonio,
Yes - there are more bad deals than good deals.
Having said that, you also need to look beneath the surface to see if you can find the good in "seemingly bad deals".
For example...
1. Maybe the rents can be increased substantially when you do a value-add. For example, one 30-unit complex I bought, only 4 units were rented at $300/month. I put in stainless steel appliances, granite countertops, faux hardwood, backsplash and basically re-did the units. Before I acquired them, I estimated I could increase the rents to $850/month. But I was mistaken: the rents increased so much so I was able to rent them for $1,250/month.
2. Can you add a bedroom by simply putting a wall/partition and thus increase the value and the rent you can charge?
3. Can you increase the square footage?
4. Can you change the use of the building/land to a higher and better use? For example, here in Cincy, I've seen abandoned buildings which used to be factories converted to self storage. The developers who did this made a lot of money on buildings they bought at pennies on the dollar.
5. Can you change it from straight rental to rent to own? By doing rent to own, you might be able to increase the rent and since you pass on minor repairs and maintenance to the tenant, your cashflow will also increase. Morever, you have a buyer lined up and you don't have to pay real estate agent commission so you might actually make more money doing rent to own vs. fix n flips. I know of a real estate investor who would make $50K profit on rent to own while flippers only made $20K profit on the same house.
A lot of deals out there are bad - but a few of them can be converted to marginal deals to great deals if you just use a little bit of creativity, and if you're willing to put in the work.
It’s not difficult at all. It’s an obsession!!! Something that consumes your time. Energy. And sleep. And still you enjoy every minute of it. To succeed you must obsess happily ever after. Hope this helps. 😉
@Antonio Cucciniello I have been searching in South Jersey and also feel that more properties are not deals than are deals. It is tough to resist the itch and buy and bad deal, but definitely be patient! The BP experts say, “every no gets you closer to a yes” so maybe every bad deal gets you one more closer to a good deal. Good luck in your search!
@Antonio Cucciniello your numbers could be unrealistic, but not every market is a cash flow market. A strategy that is relevant in Philadelphia, may not fly over in San Antonio. You have to find the strategy that’s right for the market.
I analyzed two off market triplexes yesterday being sold together. At the current rents which are way below market (about $400 below market), I project a $24K/year negative cash flow using my cap ex allowance that many would think is conservative. So raise the rents! Ca is on the verge of passing statewide rent control regulations that cap rent increases at 5% + inflation. So the max increase in the first year will be around $85 (using 2.4% inflation of 2018). It will likely take more than 6 years to get this RE to market rent.
They have the RE priced as though they are charging close to market rents and this RE would not bleed cash for quite a while.
The RE looks nice, but it has to sell for significantly less than market because due to the rent control this RE cannot produce the income of comparable RE.
So the lesson (not exactly on topic) here is to keep the rents close to market especially in markets that may soon enact rent control.
@Victor Vella that seems like a lot of deals to look at for one accepted offer in your market. Are these MLS listings? I might be able to help you get more if you’re interested in strategizing.