We manage a number of condos in Central Jersey, and can tell you that you can do a couple of tweaks to improve the situation -
Drop the American Home Shield warranty.
Add the gas appliance coverage for just the furnace and hot water heater at $12.00/month from PSE&G. This will keep the tenants from griping about no heat or hot water at midnight. The rest of the AHS warranty has not much usefulness. Savings = $38/month
We typically expect a vacancy of one month rent per every two years per unit, so you can reserve $78 per month. Your $90 is fine, though.
Drop any capex reserve.
From your $90 per month repair budget I would expect to be able to replace one appliance a year ($600) plus pay one plumbing and one electrician call per year. That is sufficient. AC or furnace replacement is typically $2500 to $4000 per, so with reasonable usage you should be able to cover those too out of repairs. ($4000 over 25 year life divided by 300 months is $13.33, so $25 per month should be good on that.) Then just repaint the unit in between tenants and you are good for a decade.
In most cases, a reasonable repair guy only costs half the "warranty" or service contract charge over a year.
Flipper/Rehabber · Lyndhurst, NJ · Member since 2016 · 118 posts · 54 votes
7y
Hi Ani,
Welcome to BP! Good job on running the numbers in detail. Did you purchase the property primarily as a rental or for yourself to live in? Based on the numbers, it is not a cash flowing unit. The tax and hoa alone is $700.
There really isn't much that can be done; only other factor would be if you can raise the rent (by renovating/upgrading the unit if it's not already done). But not knowing what area this condo unit is in, it's hard to tell what the rent amount this area renters are willing to pay.
Or you can manage the property yourself. Vacancy and repair are reserves; of course you can always count that towards your cash flow as well.
Capex is for major components, in your case probably just the hvac, since roof and everything else should be covered by your hoa.
Sounds like it was suppose to be a primary residence for you, and you decided to rent it out. If this was purely an investment property that was suppose to cash flow, you could've ran the numbers prior to buying it and know that it's not a good deal. If you're looking for cash flow, consider selling it and buying a multifamily.
The good thing is, the tenant is paying down your mortgage, helping you build more equity.
Howell, NJ · Member since 2015 · 106 posts · 27 votes
7y
Hard to say. I'm not familiar with the scope of what the home warranty provides. Will it replace appliances when they brake? What about flooring in the unit? Just a couple items on top of my head, those are capex items not covered by your HOA...which I assume covers the exterior stuff.
We manage a number of condos in Central Jersey, and can tell you that you can do a couple of tweaks to improve the situation -
Drop the American Home Shield warranty.
Add the gas appliance coverage for just the furnace and hot water heater at $12.00/month from PSE&G. This will keep the tenants from griping about no heat or hot water at midnight. The rest of the AHS warranty has not much usefulness. Savings = $38/month
We typically expect a vacancy of one month rent per every two years per unit, so you can reserve $78 per month. Your $90 is fine, though.
Drop any capex reserve.
From your $90 per month repair budget I would expect to be able to replace one appliance a year ($600) plus pay one plumbing and one electrician call per year. That is sufficient. AC or furnace replacement is typically $2500 to $4000 per, so with reasonable usage you should be able to cover those too out of repairs. ($4000 over 25 year life divided by 300 months is $13.33, so $25 per month should be good on that.) Then just repaint the unit in between tenants and you are good for a decade.
In most cases, a reasonable repair guy only costs half the "warranty" or service contract charge over a year.
Rental Property Investor · Clark, NJ · Member since 2019 · 8 posts · 3 votes
7y
the PSEG coverage is a good idea. On @Darren Sager first podcast he had said he puts that in his tenants lease to have them sign up for the PSEG coverage. I thought that was a good idea to limit some calls.
Investor · Tampa, FL · Member since 2013 · 2k+ posts · 1k+ votes
7y
Thanks @Jason Bass. That strategy has worked very well over the years. Limits calls, speeds up service. If they don't want to pay for it, it's still worth picking it up I think and having the tenants get the ability to have a number where they can call and get fast service without bothering you.
New York City, NY · Member since 2017 · 247 posts · 123 votes
7y
@John M Chludzinski Had no idea PSEG offered that coverage. I just replaced a hot water heater and paid to have the furnace fixed. Thanks for that information. Going to have my tenants sign up for it right away.
New York City · Member since 2019 · 9 posts · 1 vote
7y
@John M Chludzinski Would you advise still getting the PSEG coverage for newer properties? My wife and I are going into a Triplex owner occupied situation where the utilities are only 3 years old. Probably can't ask the tenants to sign up for it and pay for it themselves as they already have leases, but I was weighing up the coverage vs some form of new home warranty.
If the HVAC and hot water heater are all only 3 years old, you might skip it until you get to year 7-8, since the units SHOULD give trouble-free service for another 5 years.. That is not an unreasonable assumption. but it is an assumption.