Garfield NJ - 12bdrm Quadplex - 1st Home purchase - biting more than we can chew?

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Garfield NJ - 12bdrm Quadplex - 1st Home purchase - biting more than we can chew?

Sunny Burns
Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes

So we have a 4 family Citibank REO under contract. It is two detached duplexes(upstairs/downstairs units) on one 5000sqft lot. Each of the 4 units, are 3 bedroom and 1 bath. It is not in a floodzone, two blocks from a nice park, two blocks from a bustop that takes you into the city in 38 minutes. Less than 1 mile away from a train station. It is in a really nice part of Garfield and is the ugly house on a block.

Above Picture, is for the Rear House

Above Picture, is for Front House. Bottom Right (1S) building is what was an illegal 5th studio unit, now considered a bonus room.

This will be my Wife and my first Real Estate Purchase, we have been living at home just saving money. When we first saw the property we were very excited because it was the first property that seemed to easily meet our goal in finding a property that when fully occupied would give $1000/month cashflow.

  • PurchasePrice: $480,000
  • Taxes: $10,700
  • Rent: $1500/unit

After our downpayment we have about $45,000 leftover, we were hoping to spend $25,000 in beautifying the property. However we just had a home inspection and there were some things that were found that we weren't expecting that need to be addressed:

  • Main Waterline into the house is Lead Pipe
  • Asbestos Insulation on some pipes in basement
  • Possible puddles in basement maybe due to water seepage, although I think it was due to dripping hot water heater
  • Small leak in main sewer pipe
  • We had an oil tank scan done; appears there is a decommisioned tank in the ground; the bank said they would take care of excavation prior to closing
  • There is a illegal 5th unit; now considered a bonus room - it also has a seperate basement. There is significant water damage in the basement, and the subfloor has been reinforced but the old original wood has a lot of mold on it. We are thinking of either putting a new floor in it or knocking it down and making more room for parking.
  • Some Cracks on outside Masonry
  • Some signs of termites
  • Missing Flashing around house

Anyway after the home inspection, we were both really down - it seems like there is just so much to deal with... there is tremendous income potential with the property, but being new investors I don't know if we can handle some of these major issues. We were hoping to save some money so that we could seperate the heating, currently there are a total of three gas meters, wanted to install a 4th and install furnace/hotwater-heater/reroute plumbing to seperate the heat. Currently one unit shared in each house. Any advice out there or thoughts; especially interested in what other North New Jersey investors have to say.

Here are some more pictures of the property; Inside is a little outdated but in decent shape:

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Eric Army
Investor · Providence, RI · Member since 2014 · 24 posts · 16 votes
11y
Hi- your home inspection list doesn't look that bad, honestly. Most of these usually show up on my inspections, and don't raise my heart rate anymore. Many can be addressed on your time-table-- some are typical conditions that aren't great, (and you wouldn't do this if building new) but may not need to be addressed while you own. I'd put these in 3 categories: now, within a year & if/when it's a problem. 1. Items I'd try to resolve up front: -the sewer leak & moldy floor 2. Sounds bad, but may not be a big deal: (1yr) -masonry cracks- through the brick, or just the mortar joints? Repointing is usually the solution. Often times this is more important for water-proofing than structural. -flashing- I'd put this and repointing on your 1yr time-line -termite- does it seem to be active? 3. Very common deficiencies. May have some potential exposure for liability, but any similar property someone lives in may have this scenario: -lead main water pipe- in my area, this is very common for older urban buildings. Ie . Has the street main been converted from lead? -asbestos. Also very common (here). Is it friable (ie loose & deteriorating)? I've often seen this encased, rather than removed. Everything from duct-tape to boat-wrap. I have to remember that the inspector works for me- if he can give me negotiating chips, great. If he can educate me about maintainance issues, great. If he finds problems that don't need fixing, duly noted. (Some issues you cite may be bigger deals! Just speaking from my experience.)
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  • Carrie Giordano
    Investor · Marina Del Rey, CA · Member since 2015 · 297 posts · 87 votes
    11y

    @Sunny Burns would the bank be will to negotiate a credit for any of the repairs? I'm not familiar with the area but it seems like a great opportunity if you can swing it. That said you are going to want some reserves especially since it's a multi unit.

    1Reply
  • Henry L.
    Investor · New York, NY · Member since 2012 · 67 posts · 4 votes
    11y

    Are you sure you can get $1500 rent per unit? Is that a high, low, average estimate?

    0Reply
  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    11y

    get estimate on repairs present them to bank,abestos flood damage mold is someting that scares banks and they will credit you,look at this as an opportunity you can actually make money on repairs and they dont have to be done at once

    2Reply
  • Henry L.
    Investor · New York, NY · Member since 2012 · 67 posts · 4 votes
    11y

    Also, may I ask, how did you find the deal?

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    @Henry L., $1500 is the low side of average. The average rent seems to be around $1650 for a 3bedroom 1 bath, seeing some as high as $1900, and the lowest I've found is $1325. But even if we only manage to rent out the units at $1250 a month, we are still meeting our cashflow goals.

    The property was on the MLS, but it was a REO firstlook property, so the bank was only taking bids from Non-investors, people that would owner occupy the property for the first 15 days. I think that is the only way we were able to get it. We put a bid on another quadplex(8bedroom, 4 bath) only 3 blocks away, and we big $26,000 over asking. And two investors put full cash offers over ours.

    @Carrie Giordano and @Account Closed, yea I'm not too sure they are willing to do repairs or give credits. Our lawyer tried putting a lot of contingencies, and they just came back with as-is, we won't do anything. However when we had the oil tank scan done, the bank was willing to receive quotes for getting it removed and seem to be handling that. So I guess all we can do is try... If they say no though, I don't know if we are willing to risk going forward with all these problems in the way.

    1Reply
  • Eric Army
    Investor · Providence, RI · Member since 2014 · 24 posts · 16 votes
    11y
    Hi- your home inspection list doesn't look that bad, honestly. Most of these usually show up on my inspections, and don't raise my heart rate anymore. Many can be addressed on your time-table-- some are typical conditions that aren't great, (and you wouldn't do this if building new) but may not need to be addressed while you own. I'd put these in 3 categories: now, within a year & if/when it's a problem. 1. Items I'd try to resolve up front: -the sewer leak & moldy floor 2. Sounds bad, but may not be a big deal: (1yr) -masonry cracks- through the brick, or just the mortar joints? Repointing is usually the solution. Often times this is more important for water-proofing than structural. -flashing- I'd put this and repointing on your 1yr time-line -termite- does it seem to be active? 3. Very common deficiencies. May have some potential exposure for liability, but any similar property someone lives in may have this scenario: -lead main water pipe- in my area, this is very common for older urban buildings. Ie . Has the street main been converted from lead? -asbestos. Also very common (here). Is it friable (ie loose & deteriorating)? I've often seen this encased, rather than removed. Everything from duct-tape to boat-wrap. I have to remember that the inspector works for me- if he can give me negotiating chips, great. If he can educate me about maintainance issues, great. If he finds problems that don't need fixing, duly noted. (Some issues you cite may be bigger deals! Just speaking from my experience.)
    4Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    11y

    It is better to attempt for a repair credit versus assuming upfront answer is no.

    I would agree that you need to obtain repair estimate immediately.

    Remember you make money when you purchase a property.

    1Reply
  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    11y

    Property goes back on the market and now the lender 

    should have to disclose hazard issues.   ( mold and asbestos )

    1Reply
  • Jake Recz
    Manville, NJ · Member since 2015 · 141 posts · 87 votes
    11y

    The rent you have in mind is right on the money. You can rent out 3 bed 1 bath in Garfield for $1500 and for $1250 you would have A LOT of takers. Asbestos insulation is not a problem if you know how to remove it yourself. It's not that difficult. Oil tank is your biggest issue. IF the bank pays for the removal that's off your list of problems. You mentioned a lead water pipe going into the house. I know for a fact that A LOT of the water mains in Passaic County are from lead. Passaic Valley Water Comission adds special chemicals to the water to solve that problem. Find out more about that lead water pipe. My guess is, if the PVWC can have lead mains, you shouldn't have a problem with a lead pipe going into the house. Overall the property looks great. Also since it's a REO it's typical for the bank to sell as-is and refuse to fix anything. We're closing on a REO in Somerset County now and in our case the attorney review phase of the process pretty much did not exist. The banks attorneys made it clear that the bank refuses to fix ANYTHING so we should not even bother with any requests as they will just send us back a standard response of basically "take it as is or goodbye"

    3Reply
  • Mike Baker
    Contractor · Blackfoot, ID · Member since 2013 · 149 posts · 52 votes
    11y

    I would agree that your list isn't horrible, but if you have never dealt with those things before then it can seem daunting.

    It would be a good project for you to get dirty on. 

    Get your estimates, talk to the bank (worst they can say is no), and move forward.

    Also, I don't know about your area, but it concerns me that they didn't disclose mold, lead, and asbestos. They do their own inspections ( as general as they may be) but it sounds to me like they are not hidden problems and are fairly easy to recognize. Even if they only concede on those issues it's worth the conversation.

    1Reply
  • Judy Parker
    Rental Property Investor · Closter, NJ · Member since 2015 · 884 posts · 722 votes
    11y

    I agree with Eric Army, been in this business long enough that the "problems" Sunny Burns mentioned don't scare me. Had to replace or repair sewer lines, had to run a new underground water line and install a separate meter....been there, done that. Sunny, I am in New Jersey, close to Garfield. Nice find! Go for it!

    1Reply
  • George C.
    Rental Property Investor · My City, NY · Member since 2012 · 51 posts · 32 votes
    11y

    Sunny,

    Nice find! I would make that 5th unit part of one of the four to get more rent out of it, or rent it for storage, something to make added rent from it. Do not tare it down, that will cost you thousands and you'll never make any money from doing that. The inspection report is ok, you don't have to fix every single thing, there is no perfect property. Even new buildings don't stay new for long.

    1Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    Hey everyone thanks for all the awesome feedback. Definitely giving my wife and I a lot of encouragement. Yea yesterday we called a bunch of contractors, we have one basement waterproofing guy, one floor finishing guy, one demolition guy, and one driveway and sidewalk guy coming in on Monday to give us quotes. I am also speaking with a plumber about getting quotes for those issues.

    @Eric Army and @Jake Recz, regarding the leadpipe - I called the city to find out about whether the city waterline was also lead, they said they'd have to get back to me. I guess if that is the case there is no sense in replacing it. I will look into it further though. I was also considering installing a whole house filter right at the water meter if a water test came back badly. My Wife is concerned about tenants suing for health problems. Jake I will look into that chemical you were talking about. The Asbestos insulation seems old but not in bad condition.

    @Mike Baker yes, we are trying to get quotes for everything, and ask the bank to deal with the main concerns, and the rest we will have to prioritize what we have to do first.

    @George C. the 5th unit, is in bad shape structurally, the basement underneath which is seperate has gotten a lot of water underneath, and continues to, so that will have to be attended to and then waterproofed somehow, as well as the subfloor replaced due to it having lots of water damage and mold. It also is not easy to attach to the main building, we could attach it to the first floor if we remove the shower and go through the bathroom, but I think if we were to fix it up, it would have to be a seperate bedroom(not sure if that is legal), or more likely an office space. But it kind of is an eyesore, and we feel that without it there we could really beautify the property and create parking spaces for all the tenants. The only concern we have with tearing it down is that we heard you need permission from your lender if its part of the floor plan - anyone know if that is true?

    Again thanks everybody, I reached out to another local BP investor who has a rental property in Garfield. He was kind enough to say that he would come walk the property with me tomorrow evening. So hoping to get some solid feedback from him as well.

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    Update 1:

    So last Sunday, Marcin, a nearby investor came with us to take a walk through of the property. He and his Wife came, and gave us a ton of great input on what could be done with the property, as well as things we didn't have to do or could let go for a while. My Wife and I both felt a lot more comfortable after meeting with the two of them. So a big thank you to @Marcin Ferenc

    On Monday we met with a Plumber, a Paver, and a Basement Waterproofer. Tuesday we met with a Carpenter, a termite guy, and a asbestos removal guy. Today we met with a Mason. So been a busy week getting a lot of quotes from contractors. We wanted to get quotes from the contractors so that we could submit them to the contractors to hopefully get things repaired or credited. We know banks don't normally make concessions, but they seemed to have conceded on the oil tank, so perhaps they would concede on some structural and hazardous issues as well. Oh update on the oil tank, the realtor called and said kind of sheepishly that the bank wanted her to ask if we would take a $1500 credit instead of having them pull the tank out themselves - we of course said no! as she expected. Anyway below are the quotes we received thus far:

    • Asbestos Piping Insulation Removal (170 linear feet)- D&S Restoration - $1900
    • Mold Remediation, And Basement Waterproofing on Secondary basement (flashing, drain pipe, drain baseboard, sump pump and pit, re cement floor) -  A1Waterproofing - $5,850
    • Demo the illegal 5th unit structure - $15,000
    • Replace Section of Cracked Sewer Line - Promen Plumbing - $2000
    • Replace Lead Watermain line to street[advised we just install whole house filter] - Promen Plumbing - $5900
    • Replace Steam Boiler - Promen Plumbing -$5300
    • Install second furnace and hot water heater and separate heat in units(1st house) - Promen Plumbing - $12,000
    •  Reinforce Beams between first floor Kitchen Cieling And 2nd floor kitchen floor (6 new beams and sheetrock,spackle, paint) - J&B Contracting -$3400
    • Termite Treatment [Said no visual termite damage just signs of mudtubes and termite presence] - Aries Termite Control - $1650 for both houses
    • Redo the whole driveway in Asphalt - Boyd Paving - $9,800
    • Redo the whole driveway in concrete - Boyd Paving - $21,000
    • Redo sidewalk - Boyd Paving - $5700
    • Repair cement siding on rear unit (Crack in masonry) - Bergen Mason Contractors -$1500

    All quotes besides paving the driveway, separating of the heating units,  the cement siding repair, and demoing the building were just sent to the realtors who will send it to the bank. I was surprised at the $15,000 quote to demo that 5th unit. Anyway will be looking into that some more.

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y
    Hey everyone so the realtor has been going back and forth with the bank regarding the oil tank. It seems like now they don't want to remove it themselves - instead they'd rather give a credit - she said they were talking $20,000 - $30,000. I don't know, is it time to walk away? I feel I might be willing to risk that after a 4-corner soil sampling test is conducted. What are your thoughts? Take the risk or walk away?
    0Reply
  • Account Closed
    Real Estate Agent · Las Vegas, NV · Member since 2015 · 2k+ posts · 1k+ votes
    11y

    it looks like the bank is giving you almost everything your investor neighbor is probably the best to ask if you can buy more time for a soil test then wait otherwise it is up to you with all your recent education What is your gut telling you?

    0Reply
  • Stanley H.
    Investor · Madison, NJ · Member since 2015 · 4 posts · 0 votes
    11y

    Hey,

      What's funny is I saw that house for sale online somewhere, but forget where. I have no insight on the house, as we weren't ready to make a move on anything at the time. 

    To give some insight, I think what you should do is tally up all the expenses. Once that is done see what your total cost is. Once you know the total cost of acquisition, compare it to the rental income, use a proper rental calculator to figure expenses, than you will know what your net income will be. I say you base your decision off of net income to see if the deal is worth it or not. Don't worry about the issues, just get quotes from qualified people so you know just how deep into your pockets this property would cost.

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    Update: So a week ago we asked the bank to give us a $50,000 credit at closing - cash back in our pocket if they weren't going to remove the oil tank. Today they responded with: "I can offer a $50k price reduction to the buyers in lieu of removing the underground oil tank or performing any other repairs. I cannot offer a credit. Please advise if the buyers are willing/able to accept this reduction."

    I think our plan is to accept and perform a soil sample test in the mean time to make sure that checks out. Thoughts?

    0Reply
  • Andrey Y.
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    11y
    Originally posted by @Sunny Burns:

    Update 1:

    So last Sunday, Marcin, a nearby investor came with us to take a walk through of the property. He and his Wife came, and gave us a ton of great input on what could be done with the property, as well as things we didn't have to do or could let go for a while. My Wife and I both felt a lot more comfortable after meeting with the two of them. So a big thank you to @Marcin Ferenc

    On Monday we met with a Plumber, a Paver, and a Basement Waterproofer. Tuesday we met with a Carpenter, a termite guy, and a asbestos removal guy. Today we met with a Mason. So been a busy week getting a lot of quotes from contractors. We wanted to get quotes from the contractors so that we could submit them to the contractors to hopefully get things repaired or credited. We know banks don't normally make concessions, but they seemed to have conceded on the oil tank, so perhaps they would concede on some structural and hazardous issues as well. Oh update on the oil tank, the realtor called and said kind of sheepishly that the bank wanted her to ask if we would take a $1500 credit instead of having them pull the tank out themselves - we of course said no! as she expected. Anyway below are the quotes we received thus far:

    • Asbestos Piping Insulation Removal (170 linear feet)- D&S Restoration - $1900
    • Mold Remediation, And Basement Waterproofing on Secondary basement (flashing, drain pipe, drain baseboard, sump pump and pit, re cement floor) -  A1Waterproofing - $5,850
    • Demo the illegal 5th unit structure - $15,000
    • Replace Section of Cracked Sewer Line - Promen Plumbing - $2000
    • Replace Lead Watermain line to street[advised we just install whole house filter] - Promen Plumbing - $5900
    • Replace Steam Boiler - Promen Plumbing -$5300
    • Install second furnace and hot water heater and separate heat in units(1st house) - Promen Plumbing - $12,000
    •  Reinforce Beams between first floor Kitchen Cieling And 2nd floor kitchen floor (6 new beams and sheetrock,spackle, paint) - J&B Contracting -$3400
    • Termite Treatment [Said no visual termite damage just signs of mudtubes and termite presence] - Aries Termite Control - $1650 for both houses
    • Redo the whole driveway in Asphalt - Boyd Paving - $9,800
    • Redo the whole driveway in concrete - Boyd Paving - $21,000
    • Redo sidewalk - Boyd Paving - $5700
    • Repair cement siding on rear unit (Crack in masonry) - Bergen Mason Contractors -$1500

    All quotes besides paving the driveway, separating of the heating units,  the cement siding repair, and demoing the building were just sent to the realtors who will send it to the bank. I was surprised at the $15,000 quote to demo that 5th unit. Anyway will be looking into that some more.

     Congrats on getting it under contract! I would definitely try and negotiate at least part of that invoice with the bank. I grew up next door in Fair Lawn, so I'm familiar with the area. Is this your first rental?

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    Update: So the bank reduced the purchase price from $480k to $430k. We just signed the addendum on Friday. We wanted to wait to sign the addendum till we got the soil boring samples results back from the lab. And we did on Friday - and the came back completely CLEAN! So we feel pretty decent and are excited about moving forward with the property. 

    We've been trying to find a good home insurance company, it's a little difficult since its two separate duplexes on one lot - but we think we are going to end up going with liberty mutual. 

    @Andrey Y. yes this will be our first real estate purchase ever. We've been living at my parents house just saving up until we could afford our first home, house-hacking style :)

    0Reply
  • Alex W.
    Edison, NJ · Member since 2014 · 20 posts · 5 votes
    11y

    Nice, that's a pretty sizeable reduction.  

    How come the bank reduced it so much? Is it due to your list of repairs needed? 

    Also which bank is this?

    Thanks

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    11y

    @Alex W. not sure why they went for it.  We've been dealing with this property since June 25th, so over 2 months now... And in that time the bank went back and forth about whether they were going to remove the tank 3 times, we gave them 4 different quotes for excavating the tank. I think finally the asset manager might have gotten tired of it, and also all the other quotes we sent in regarding other issues with the house - so when we asked for a $50k credit, he was willing to work with us.

    The bank is Citibank.

    We have an appointment to get the C/O and Smoke Cert today.

    0Reply
  • Sunny Burns
    OP
    Rental Property Investor · Mine Hill, NJ · Member since 2014 · 229 posts · 396 votes
    10y

    Today we finally closed on the house! It's been a long journey, five months since we initially put in our offer, two years since we started searching for homes, three years since we started researching REI, and seven years since I first had the goal to purchase My first home by the age of 25.

    Just wanted to thank everyone who has helped me so far and helped answer a lot of my questions. The biggerpockets community has truly been essential for me throughout this process.

    I wanted to give a big thank-you to @Ahmad H. who suggested the bank we ended up getting our mortgage through. Trustco was great just like he said. They allowed us to put 10% down on a quadplex with no PMI, and we got a great rate at 3.99% - with pretty low closing costs. The total closing costs were just under $10k, on a $430,000 home I think we did pretty well.

    Big thanks to @Marcin Ferenc who came to look over the property with us once we were under contract.

    And now the real work begins... by the way anyone have a Mason in bergen county they would recommend?

    1Reply
  • Marcin Ferenc
    Flipper/Rehabber · North, NJ · Member since 2014 · 91 posts · 23 votes
    10y

    Congrats guys!! Good to see the long journey finally over. We are both happy for you and wish you the best with the new property. 

    0Reply
  • Ahmad H.
    Rental Property Investor · New York, NY · Member since 2013 · 136 posts · 101 votes
    10y

    @Sunny Burns Congrats! Good things happen to patient and hard working investors. A glance at the numbers suggests that you should be able to live rent free while accumulating equity, rehab experience, and property management experience. Best of luck with this project and I am looking forward to reading about the next deal!

    0Reply
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