Northern NJ (7 Miles from NYC) Analyze my deal/Help with MAO

Buying & Selling Real Estate
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Northern NJ (7 Miles from NYC) Analyze my deal/Help with MAO

Ian Paulix
Member since 2020 · 4 posts · 0 votes

Hello, BP, let me start by saying I am very new. I recently read “The Book on Rental Property Investing” and “Negotiating Real Estate” but I can’t help but feel inexperienced and insecure about this so I am asking your help.

This is an off-market three family 1910 Victorian I am looking to house-hack with 3.5% down via FHA and 203k. It needs about 150k in work to become a Class A property. It currently only has a top tenant for $1500 a month to cover taxes and it is in very poor condition. Conservative rent in great condition is $2,200 a month. I think with the offer of off street parking, or even the garage+washer/dryer I can get more.

The owner/heir advised me a realtor wants to list for $550k, but since it would be off market with me he’d do 525 due to no realtor fees, and lowest is a family friend price of $500 (I also offered to move all his junk out).

The ARV is difficult to estimate, there are not many comps I saw within close proximity that I can see as reliable. My guess is the conservative ARV is going to be $650,000.

I attached a youtube clip I made of the first two floors, and the exterior to show you the layout and neighborhood.

;t=2s

Other things to note.

The express bus to the city is around the corner, and across the street are two brand new 1.2 Mil homes, next door is a zestimate of 637K and is an alike but single family home. There is a four car garage that are separated and in great shape as well.

Thank you, and sorry if I left out anything. Im sure there are edits to come!

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    So you're going to pay $650k all-in, manage a pretty extensive renovation, have considerable holding costs, and end up with a property that worth...$650k? Does that seem like a sound financial decision, @Ian Paulix? Why not just buy a new or renovated "Class A" property for $650k and save yourself the headaches?

    Assuming your ARV and reno numbers are correct, you should aim to pay no more than ~$335k. And with a 1910 Victorian there are going to be surprises, a lot of surprise. Double that contingency budget! A few more questions to ask yourself:

    • Are the utilities separate? Probably not, since this was almost certainly converted.
    • While you're at it, make sure this is actually a legal 3-unit.
    • Have the wiring and other mechanicals been updated? You may have to bring them all up to code.
    • Has the building been air sealed or insulated? That place is an energy pig, that I can promise you.

    All that being said, a $650k property that gets $6600/month in rental income could be a solid deal. Especially, if you can BRRRR it. At those prices, I bet your market is seeing some decent appreciation.

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  • Ian Paulix
    OP
    Member since 2020 · 4 posts · 0 votes
    6y
    @Jaysen Medhurst Ok, I am glad I turned down 500, with a possible ARV of 650, what would your MAO be with these dirty numbers? The reason I am not going after a Class A renovated 3 family is that the market is so hot here, that I am having difficulty finding anything I can compete in. This is off market so its easier for me to take my time and not get outbid. -All utilities except the heat are separate. Which is unfortunate being that the insulation is in question and I need new windows. -It is a legal 3 unit (I had the town email me the records). -I hear some of the wiring has been, but a lot of knob and tube is difficult to access. A contractor walked through and said this is mainly a cosmetic job, but I did not do an official inspection. -I am not sure about the insulation, but the budget includes redoing the siding and maybe I can do it then which was a suggestion. Thank you for the insight and detailed response. These are great things to bring up. At this current time I have walked away, but he seemed upset about it and may come back to me. My final offer was $450.
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  • Ian Paulix
    OP
    Member since 2020 · 4 posts · 0 votes
    6y

    @Jaysen Medhurst

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    6y

    @Ian Paulix, if your numbers are correct, $335k would be my MAO. You could certainly add insulation during the new siding. That's actually a great opportunity to add an air/water/vapor control layer, too.

    One option for the heating would be to add mini-splits to each apartment. This also provides central air in the Summer, which is a competitive advantage in a market like NJ. Of course that may require updating the electrical, which means the knob and tube has to go...see how these things spin away from you?

    Without knowing anything about the rest of your renovation plan, $150k might have been an aggressive renovation budget.

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