Rent or sell in NJ ??? Keeper or flipper ???

Question

Hi everyone.Need a little help here.I'm a reader, not a writer, but this time I decided to ask you for advice... Up until now I was doing flips (not many, but did few) and knew my outcome pretty good. But my last purchase (condo) makes me doubt should I sell or rent it, because is newer build and good location (near hospital, university and major highways).Tenants would be upper class... Don't have any rentals, but always wanted to go that road. Problem is, when I crunch my numbers,It's just doesn't make sense (in my opinion)... I wanted to do BRRR... I know, for many of you, who live's in midwest, is a no brainer, you immediately would say-no deal, but I would like to hear from somebody who lives in North East or somewhere with crazy high taxes.... Do I missing something, do you guys do something different or am I right and it's no deal? Here is some details: Purchase price, closing and repair cost combine 220k., ARV 285k-300k., taxes 5.650y., HOA 260 per month, rent is between 2200 and some rents for 2400, so I picked in the middle 2300 (it may be more, because everything will be new and renovated, but just to be on the safe side, lets say 2300). Like I said, would like to do BRRR, but every time I put numbers in calculator, everything is upside-down.... Because it's my first rental, better tenants, HOA (everything outside taken care of), I'm ok to manage my self... So, am I missing something, you guys doing something to make it work, or just plane and simple-it's NOT a keeper..? Thank you in advance everyone for your advice and help!

Rob Akovity · Answer

Almantas,

The way I look at it is if you can pull off to get all your cash out it is a winner. Day 1 you don't have a single penny invested and you have a house with 20%-25% equity and a profit generating tenant. You have all your cash to do it again. So it sounds like a perfect deal.

The closing cost is the only hard cost (unless I missed something) that you have to account for day 1. However, you enter the risk of potential cost (vacancies, repairs etc.) with holding the unit. Only you can decide how much risk are you willing to accept but if you find a decent, well paying tenant you can mitigate those risks. Since it is all new repair costs are less likely. You don't have a crystal ball to see the future but hopefully the association imposes some crazy assessments (e.g. roof, siding, snow, debt etc.). That would be a concern but it is the same with any condo associations. You may want to research that and review their financials etc.

You can hold it for 2-3 years. Spend the effort to find a great tenant and collect the cash. If you can afford it you can even leave some cash in it and get a 15 yr fixed mortgage. The rates are lower and with each rent payment your tenant pays 40% principal into your pocket.

Hope this helps. Good luck. Rob

Almantas Buikus · Answer

Hi Rob.Thank you for reply. My numbers almost same like yours, ( I can pull ether 100% of my money, or leave very little) but after I add vacancies, capex expenses, maintenance fee it will go down fast... Should I add capex or not, because it's actually newish condo, everything updated... I don't want to twist numbers just to feel good, but in reality loose money.

Rob Akovity · Answer

Almantas,

It looks like you made a great purchase and if your ARV figures are realistic you have some decent equity in the property already.

The way I see it might be a simpler question. Here is the big picture:

First your cash out with the REFI a few scenarios with your figures:

1. Appraised value $285k, 25% downpayment requirement will get you $213,750. ($285,000*0.75)

2. Appraised value $285k, 20% but only down will get you $228,000. ($285,000*0.80).

3. Appraised value $300k, 25% down: your cash is $225,000. ($300,000*0.75)

4. Appraised value $300k, 20% but only down will get you $240,000. ($300,000*0.80).

As you see you could recover all your cash investment with all except 1. Ofcourse, closing cost is additional so please account for it.

Secondly your mortgage payments. If you assume a $240,000/30Yr/4%, your monthly payments will be around $1,146 (please verify). Adding all monthly expenses up is $1,927 (incl, 1,147 mortgage, 260 condo fees, 471 taxes and 50 for insurance). That would leave you with roughly $300-$400 monthly profit, of course before any adjustments for vacancies, repairs etc.

Please verify all calculations and review yours to see if this makes sense. Hope it helps.

Good luck.

Rob

Rent or sell in NJ ??? Keeper or flipper ???

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