Would You Invest In This Property?

3 Replies

I'm pretty new to investing in houses so I could really use some help here. Thanks in advance. 

Here is the math that I did:

$100,000 down on 500k single-family in New Brunswick Nj, very close to the center of Rutgers Campus.

$10,000 for closing costs (overestimated) and $10,000 for repairs that need to be done= 120k cash down total

4400 rent

Mortage (based on 3.9% interest rate) AND property taxes: -2841/mo

Capital expenses (estimated at 8% of rent): -352

Profit: 1207/mo

Return: 12%


My Main Question:

I just found out that the property brought in a rental income of 4400 only in 2019. It was bringing in 4250 in 2018 and 3700 IN 2017! There are caps in New brunswick to how much you can charge for rent so I'm assuming they raised it to the limit each year. The same guy that repairs my other property in New brunswick, told me that students fight over renting this house every year. And this was confirmed by someone I know that works for the town, also I went to school there and know this is a very popular street for college kids. However, I was under the impression the whole time that they've been rented out for years consistently at 4400. But now that we are under contract I get the rental history and find out that it was just recently raised to 4400 in 2019. So my question is should I bet on this property bringing in at least 4400 a month consistently going forward to get those 12% returns? Or is that a bad assumption. I'm still really new to investing so I'm not exactly sure how to judge rental history. What I do know for a fact is that if I can only rent it out for 3700 like they did in 2017 instead of 4400, the returns would be much much lower?  

Bottom line: Is it not a good investment if there is only proof of it being rented out at this higher rate just one year?

Additional information:

- This house is a 5 bedroom and only 5 people can live there

- It was also built in 1860's (but seems very well maintained) *should I be concerned about the year built? (all electric seems updated)?

- I have another house in New brusnwick, 2 unit multi-family, a little further away from the center of campus in new brunswick. One unit has 2 bedrooms and the other has 3 so a total of 5 bedrooms and can have up to 7 people living in both units total. But including renting out the garage it brings in a total of 4,010 in rent. It's still walking distance from campus but not on a main street like the property that I'm considering buying. But still, my tenants pay much less at the house that I currently own than the 4400 I would hope to get out of this new property that I'm under contract for and considering buying.

Any help would be appreciated because again I don't really know how to judge past rental history confidently.  

Mila, I have a management company in town, our signs are everywhere. Rents usually go up each year unless they're really maxed out, so it's not unusual to see increased rents each year when there is turnover each year. 500k for a property generating 4400 is pretty good (although I have no idea of the location or condition of yours), I am going to list a SFH soon in town that should rent for 4350 and it will list for about 520k (excellent shape) so you're not far off.

@Mila Posternak have you considered having a vacancy reserve, current repair reserve and also your insurance costs (or is that in your mortgage cost?).

Ask for an occupancy history, have them show it on a monthly basis for the last couple of years so you know whether those rents are at full capacity or how many months something was unoccupied. It sounds like you are in a good market so maybe there really isn't any vacancies?

Old houses can have issues even if maintained, did your inspections come out ok?