Need your opinion BP!

[Walmsley Gedeon]

First I would like to thank everyone on BP for giving me the courage to even try this. Ok so I wanted an opinion on a deal. Asking price: $170k Rehab: $65k estimated but I think it will be a lot less 4 family Irvington NJ 2-2-2-1 bedrooms. Rent 2bed $1000-1200 1bed $700-$1000 Buy and hold Section8 FHA 203k loan Estimated down payment $6k Estimated closing cost $6k Monthly estimated $1900-1950 Gas $200 Electric $75 Estimated cash monthly flow $1500-$2000 Let me know if I'm looking at this correctly. This is my first time around the block so I can use as much guidance as possible. Brand new heating system and brand new boiler system 2 years old. I think this is a major grab. What am I missing?

[Travis Hughes]

Sounds like a home run if your numbers are correct.  There seem to be a lot of assumptions, though, and what is listed above is far too general to draw any real conclusions. 

If you figure $995/mo for 2 bed and $695/mo for 1 bed, that's $3680 per month gross revenue at 100% occupancy.  

If you figure $170k purchase + $65k rehab = $235k - $6k down payment = $229k mortgage principal at 5% for 30 years, that comes out to $1230 per month P&I. Insurance maybe $100 per month. Taxes maybe $250 per month (if we assume 1.25% tax rate on $235k value, but hopefully the value is more than that). PMI maybe $80 per month. Now we are at PITI+PMI = $1660 per month. Utilities another $275 puts it at $1935 per month.

Are there any HOA dues? Any other carrying costs outside of those listed above?

Property management may cost $368 per month for management fees plus any leasing fees, renewal fees, other a-la-carte fees, etc.  If you figure two turnovers per year, that comes out to another $2000 per year or $166.66.  So PM cost maybe $500 per month after you prorate the costs into a monthly number.  

Maintenance maybe 1% or 2% of property value annually, so $2350 to $4700 per year. Let's split the difference and assume $3525 per year or $300 per month.

Looks to me like your carrying costs are about $2800 per month = $33,600 per year.  

If we assume two weeks each of vacancy for those two turnovers, that comes out to $1000 per year in vacancy adjustment.  Gross annual rents $44,160 less $1000 vacancy adjustment = $43,160 net annual rent.

Net annual cashflow $9,560 or just under $800 per month.  

IF your cash into the acquisition is only $12,000, and IF all of the numbers that I listed above are accurate to the conservative side, then your cash on cash return appears to be about 80%.  That's a lot of assumptions, however.

Dig a little deeper.  Sounds like a good deal on the face of it, though.

Note: This information is for entertainment purposes only, and should not be taken as investment advice.  I am not an investment advisor or financial planner, nor am I your agent or fiduciary.  Reader assumes all risks.