First Property Under Contract! Advice?

Question

Let me just start off by saying how thankful I am for BiggerPockets. I found the property on the marketplace, learned a lot from the topics and discussions and of course have used the calculator to analyze the deal. I'm excited to be in contract and just wanted some feedback and any advice you guys can give me on the process and where I should be careful, what I should look out for, etc.

Just a brief overview of the property: 2 family property, completely gut renovated. 7 BR/2BA - 4br duplex and 3br first floor with access to huge backyard from both apartments. Contract at $220k, comps show similar properties anywhere from $250-280k. 5 minute drive away from NJIT/Rutgers, low crime residential area.

On the low end, I should be able to rent it for $3000/mo. After expenses, that'd leave me at about 13-17% COC returns of 20% down payment + closing. I live about a 45 minute drive away and can manage the property myself.

Appreciate the help, feedback and support!

James C. · Answer

Shadman,

Congratulations!

More information is needed to comment appropriately. If you posted all your numbers (APOD) then it would be easier... For example when you say expenses are you saying only current expenses, or are you including reserves? Are you paying yourself 10% for property management? Are you house hacking? What contingencies do you have in the contract? How are you financing?

The more information you give BP, the better BP can help you.

Good Luck!

Jim

James C. · Answer

Shadman,

Still missing any real expenses for the property... however, I took an estimate equal to the monthly reserves. This is the synopsis I came up with.

Synopsis

Purchase Price

$    220,000

Down Payment 20   %

$    44,000

Amount   Financed

$    176,000

Gross Income

$    40,800

NOI

$    17,842

Debt Service

$    10,205.15

Monthly   "Cash Flow"

$    636.40

If I add in 20% (10% return ON my invested money, AND 10% OF my invested money) I get

Synopsis

Purchase Price

$    220,000

Downpayment 20   %

$    44,000

Amount   Financed

$    176,000

Gross Income

$    40,800

NOI

$    9,682

Debt Service

$    10,205.15

Monthly   "Cash Flow"

$    (43.60)

When I force this return, I am looking for a break-even or better number, and this is close enough to break even for my screens.

As far as telling you to go for it or back out... I am not in a position to tell others how to run their business, only to tell them how I would answer their specific questions in light of my business models. The most I can say on this deal is that I think there is a margin of safety in the purchase given the numbers presented. I know nothing of the market, location, specific building and it's condition to make that sort of judgement.

Good Luck!

Jim

Joe J. · Answer

I'd be interested to hear what investors familiar with the NY area would say about this deal.  I'm from Los Angeles and those numbers would be a fantasy here.  The annual GRM on that property based on the low range of your estimated gross rent is 5.7.  I'd kill for something below 12 in my area!

Wish you the best of luck!

Joe

Shadman S. · Answer

Jim,

Thanks for your response. Let me give you the numbers. After running numbers again, using more conservative figures, returns are no longer near 15% COC. Let me know what you think. Go for it or back out?

Mortgage: $850/mo - 30 yr @ 4.1%, 20% down payment - $44k

Property tax: $4438/yr - $370/mo

Insurance: $100/mo

Water and Sewage: $1000/yr - $85/mo

Prop. Mgmt: ~$200/mo -

Reserves

CAPEX: 10% - $320/mo

Vacancy: 10% - $320/mo

Maintenance: 10% - $320/mo

Approx. Gross Rent: $3200-3600.

First Property Under Contract! Advice?

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