Help! in central Jersey- numbers not adding up.

[Account Closed]

Hello All, I am a newbie in these forums and bought my 1st condo investment property in central Jersey. Lived in it for a year and then rented out.

Here are the numbers

Its a 2br 2 ba 1100sqt condo with homeowners association.

Incoming rent 1825

Operating expenses :

1. property tax- 416.mo

2. home insurance(farmers) -37/mo

3. Home warranty- 50/month (american home shield

4. HOA- 300/month

5. vacancy 5% - 90/month ( the property is in a high rental location, it got rented in a week.

6. Repairs 5% -90/month

7. Capex- not sure If I should allot for this ,as I am already paying american homeshield.

8. Property management 6 % : 108/month

9. Principal + interest 821.15/mo

Total expenses come to 1912.15 $

As you can see, not much cash flow- infact going negative.

Any comments on my situation. What can I modify to be in a better cash flow situation.

Also , I have a W2 job, so i dont depend on the cash flow from rental- it would be still nice to have a positive cash flow.

Any and All advice would be appreciated.

Thanks.

[John M Chludzinski]

Hi, Ani:

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.

Feel free to reach out for further details.