Hello BP people!
As you can see, this is my first post and I am new here. I certainly wish I knew about this website earlier on, but better late than never! I recently purchased my first investment property, a 3 family in Union City, NJ. It is an area in which I believe property values are going to skyrocket. It is in the same areas as Jersey City and Hoboken to those who are familiar with the area and only a 15 minute bus ride into NYC.
With that being said, this was my very first property and I want some honest feedback. I don't think I did terrible, but I would still like some advice/opinions. A little back story on the place, it was originally part of a church monastery and subsequently converted into 3 condos. Upon buying the property, it was converted back to a 3 family home for tax abatement and future leveraging purposes. In the future, a little money and filing paperwork is all it would take to convert it back into 3 condos. In terms of improvements on the property, I had a wrought iron gate/fence installed, security cameras, and glass shower doors. I will need a new roof in about 2 years. Everything else is turnkey - chef kitchen, wood floors, 16 foot ceilings, 2 units have skylights, everything separate meters, new water heaters, new appliances, etc. I essentially purchases someone's flip. Next time, I will have a team and we will do the work for half the price!
The purchase price was $800,000. Units 1 and 2 are both 1bed/1 bath and unit 3 is a studio. Unit 1 is currently rented for $2,100/month and Unit 2 is currently rented for $2,000/month. I am living in Unit 3 for 1 year and will be renting it out next year for around $1,900. Currently, cash flow is $4,100/month, but will be $6,000/month in the future. Cap rate is around 6.5%, based upon my calculations
The 1% rule has not been met as 6,000/800,000 = .75% but as I mentioned, I am receiving a little less now due to living in the place for the year. However, I put approximately 40% down and did a 30 year finance on the remaining. I am currently managing the property myself and have certainly learned a lot. After taxes, mortgages, and expenses, I am clearing about $700/month.
I am concerned because at the end of the day, any property can be a cash flowing property if enough money is put down. In addition, while taxes are about $7500/year now, in 2024, the tax abatement ends and taxes will be about $22,000/year.... Ouch! With my calculations, at max tax rates, not increasing rents, and all else remaining equal, I will still be clearing around $1,000/month.
Is there any additional information I need to provide for feedback? The good news is that I can always utilize a HELOC to leverage the property if another opportunity arises.
Thanks everyone and I am looking forward to your responses!
Congratulation on your purchase! The price of $800k for 3 family in union city sounds a little high. I think your house may be new or renovated. The $2000 rent for 1 bedroom is very good. On average, the rent would range from $1400 to $1800 for a 2 bedroom and 1 bathroom unit in an okay condition house.
It is hard to find deals that meet 1% rule in Hudson county. 0.75% sounds okay. The Cap rate of 6.5% sounds good but i am not sure if you deduct all the operating cost.
@Diana Tian Thank you for your response. That was certainly an initial concern for the area as most units are almost half the price, however, they are in need of much repair. There were many comps that justified the price as well the appraisal coinciding with the purchase price.
The building has 3 turn key apartments. Fortunately, operating costs are extremely minimal as I am self managing. My monthly sewage, water, garbage removal, insurance, and pest control is around $450/month
Once the third unit is rented, my numbers will be even better!
@Seth Lipper I can't make heads or tails out of your numbers. You said that your cash flow is $4100/mth but you're clearing $700/mth. I think what you mean is that your gross rental income is $4100 and your cash flow is $700/mth. If you are only cash flowing $700/mth, then you're cash on cash is only around 2.5%. On that basis, this is not a good investment at all. If you're only clearing $700/mth now, I also don't understand how you're going to be clearing $1000/mth when you're property taxes go up to $22,000. This isn't making sense to me.
@Mike D'Arrigo to clear up confusion, the $4100/month is the gross rent on two of the three apartments currently rented. After ALL expenses, I am netting around $700/month. Once the third apartment is rented (I am living in it for one year), my operating cost actually decreases because I have less utilities to pay. When that apartment goes up for rent in April, that will be an additional $2,000/month coming in, making my monthly gross rental income $6,000/month. My total take home will be $2700/month after expenses (PITI, trash, sewer, water, etc.)
Addressing the second part, while the property still has tax abatement, I may unload it after a couple of years since the property should increase in value due to my additions and the gentrification of the area
@Seth Lipper with 40% down, your cash on cash return is less than 10%. I wouldn't consider that a very good return, especially on a multi family unit.
@Mike D'Arrigo Thank you for you input. Once all three units are rented, the cash on cash will be 10% next year, and when taxes reach the end of abatement period, in five years, cash on cash return will drop to around 6%. In my opinion, and I could be wrong, not only is the property expected to increase in value, but even if I utilize a HELOC to purchase additional investment properties, the rent roles will still be able to cover all expenses
As I mentioned in my post, if only I learned about BP sooner, I may have chosen a different property to invest in. Regardless, it is a learning opportunity and not a terrible start to my REI portfolio!