How do i quickly evaluate a deal? What numbers should I look for, and rely on, to pull the trigger on my first rental property in nj. I have read and listened to tons of materials here at
BiggerPockets (a bit jaded now since i have been inactive), but still some doubts linger.
Here is what I am thinking.
1) Follow 1% rule for potential rent and property cost. In other words if the rent is $1000/mo the max one can pay is $100,000 for the property.
2) Follow 50% rule to accommodate all types of expenses and figure out the potential NOI. In other words, if $1000 is the monthly rent, $6000 (50% of $12000) is the annual gross revenue. Which gives a caprate of 6%. So If one wants a 10% caprate the maximum one can offer is $60,000. If one wants 8%, the max offer is $80,000 and so forth.
Both options allows me to figure out the cost of the property, am I right?
1) What would the caprate for a good deal will look like? (I know that caprate is mainly used in commercial properties. But still, the question is, can one or can one not use this number to determine if this is a good deal in nj? )
2) Do I need to go any further and incorporate financing into mix (i.e. along with 1% and 50% rules) to figure if a property is a good deal or not? In our example, If I add financing into the mix with 25% down at 4.5% interest rate for 30 years. The debt service would around ~$380/mo, which for a year is ~$5440, and the ROI would be ~21%.
3) Any other numbers one can rely on?
Your thoughts please. Feel free to criticize me if I made any mistakes or don't make any sense.
Note: I am looking at a few properties in nj (carteret, woodbridge...) on a high-level. I will post the real numbers as separate posts when it is ready.
Thanks a lot.
Start with the 1% rule, then try to put actual numbers into one of the calculators. I like this one: Real Estate Analysis Free
I too am investing in NJ, and the biggest hurdle is the high property taxes that can kill cash flow.
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