First investment property: Jackonville, NC. Need your input!

24 Replies

Hello all, 

This would be my first investment property and I need to be very careful about not making bad mistakes. I'm an our-of state guy out in NY. 

It's a duplex in Bell Fork / Hawkside area of Jacksonville, NC, 28540.  How is the area? Crime-wise? Vacancy rates? Income? Has anyone had any experience in this part of the town or Jacksonville in general? 

The property would have been managed by a local PM company.

Thanks!

@Stan Chigintsev . Have you bought the property yet or at what point in the process are you?

@Henri Meli

@ Jay 

@Jay Helms

I haven't purchased it yet. A NC bank is about to approve my conventional loan application.  According to my calculations the duplex should give me about $300 a month cash flow. My goals are at least $500 a month so that I can retire overseas (where life is cheaper) due to my serious health issues that prevent me from working.  I don't have a plan on how to increase the cash flow to at least $500 yet. 

But my question here is really about the neighborhood. 

I own three properties in that zip code and another nearby, but I do not know that neighborhood specifically. Jacksonville is there because of Camp LeJeune so you will have a lot of military tenants. That can be good and bad. The properties I own there have always done fine.
I looked it on a map and you would be right in the thick of things there. my properties are further out (from the base). There is a lot of good retail right there as well to draw tenants. Again, I don't know your specific street or location, but I would certainly consider it based on what I know of the area. I can't speak to the specific deal either.

Bell Fork is not the most desirable of areas. One magnet elementary school but otherwise very low income. Some older homes with long-term residents/owners but rentals would be lower income. I don’t see a lot of military renting there as most can afford something nicer unless you are talking about a very junior service member in which case that has the same challenges as any young person living away from home for the first time. If the numbers work that sounds great but that is not where I am looking to invest. 

@Edward B.  

@Ben H.

It's at Onslow Dr, Jacksonville, NC 28540.  It's a completely rehabbed one-story duplex with two 800 sq ft apartments, 2 bed 1 bath each. Both units are currently rented out for $700 each. Does it tell you guys more about the neighborhood and potential tenants? 

I kind a like the idea of lower vacancy rates near a Navy base like this. But I'm hesitant about the idea of young hyper-active over Testosteroned kids (some of younger Marines) as my tenants since I think they may just punch holes in the wall with their fists just for gun or do target practice in bedroom or whatever... Is that a concern in these kind of areas? 


Also, how much does it "typically" cost to prepare an apartment for a new tenant? What is the average cost range in your experience? 

Thanks.

It's actually a Marine base, not a navy one. The largest one on the East Coast. I also happen to be a Marine, that's why I have 4 properties around there and I am honestly quite flattered by your opinion of us. Seriously. Alas, though, the reality is that most junior Marines must live on base unless they have families. Two of my properties rent for less than that and I've never had junior Marines in there in over 10 years. Turnover can be higher and we can always break a lease if we are deployed or restationed, but usually make pretty good and reliable tenants. We are held to a higher standard if your PM knows how. But really, if your PM is screening your tenants properly it doesn't make a difference any way.

I have, however, fired two property managers for those properties over the years so make sure you do your due diligence on that one as well.

With apologies to @Edward B. , Camp Lejeune is the largest coastal Marine Corps installation in the world. 

I’ve self-managed after getting burned by a PM years ago. With so many rentals in this area and the barrier to entry so low you get a lot of less than competant PMs competing for the contract but their focus is not what’s best for you but what is best for them. Simple math tells yo why: with average PM costs being 10% your $700 rental means they are only getting $70/mo to look after your best interests. And then they have to do that at scale? Let’s say if they are full time PM to cover costs (mileage mostly) they need gross revenue of $50k, that means they need $500,000/mo in rentals to manage. If their average is $1k that’s 500 properties. That’s why most PMs do it as a side hustle or a real estate office does it on the side- with their end goal being to sell your house. 

As for Marines, they are no different as tenants than any other grouping of 18-24 y/o “adults”.  Only they are even better because they have a guaranteed j-o-b. Vast majority of the single types have to live on base so you won’t be dealing with that crowd. Those who do live off base are married which can lend some stability but at that rental level you are going to be dealing with lower-tier quality no matter where you invest. 

Duplexes in this area can be associated with Class-C or lower areas as there are a plethora of SFH available in the area at decent price points or prospective tenants will choose from the many nice apartment complexes that have been built in the area since I've been here.

That area you have selected is a Class-C area. Some SFH with stable residents there but a duplex is going to be a shorter-term lower-class tenant.

As for cost to turnover, depends. If the place hasn’t been updated in a while I would say at least 2-3x current rent to get it up. If all it needs is paint and cleaning, 1x rent is probably enough. 

Don’t get me wrong, this may be a great investment. Duplexes are often touted as easy money- but all real estate is local. 

Hope that helps. 

Well said, @Ben H. . I almost put that it was the largest, but then decided not to get into exactly what criteria was being used. It is big, personnel wise, used to be bigger, undeniably the largest on the east coast. Regardless, I totally concur with your analysis of the Jacksonville market and the PMs there. Bottom line, the market is solid but the viability of the deal will depend on the deal itself. How much are you paying, what terms are you getting, who do you have managing it, etc. etc. It's really not that much different than anywhere else. C-Class neighborhoods will garner you C-Class tenants, which can be very good if you screen them properly. Or cost you thousands if you don't. Appreciation will be nothing to write home about, but it should cash flow nicely if you buy right. 

@Stan Chigintsev , another little tidbit on the Jacksonville market that you should account for. It is in "coastal carolina" and insurance is astronomically high there. I pay 2-3 times more there than I do anywhere else...except FL.

@Edward B. , Apologies, a Marine base. I knew of course, not sure why I wrote "Navy" in one place but Marine in other ones... was tired late night I guess. 

  I wrote "SOME of younger Marines" can be what I described too aggressive. By no means do I consider ALL marines that way. I respect Marines. 

The PM I was recommended is ABA Management. Have you heard of it?

@Ben H. Hm.. Now I'm not so sure about the deal since you said it's lower end of C-Class with higher turn-over. When I put all numbers in the spreadsheet that I have, including 5% for maintenance and 3% for vacancies, I get $340 pre tax monthly cash flow. 

It's a conventional loan with 6% rates. 

Again, the house got a "gut rehab", that's why I put 5% for maintenance instead of standard 10% for now. 

Cash on Cash return for 1st year comes to 15%.    Return on Equity (pre Tax) is 14.93%

Do you think 3% for vacancies is a realistic number in that neighborhood (Onslow Drive, 28540)?

A question to both of you guys, does the cash flow mentioned above look about right/decent for this kind of property?

But I didn't include CapEx in my spreadsheet... Some investors consider 5-10% percent on repairs to include CapEx, some use that as a separate percentage... What's your take on in?

@Edward B. , you are correct, insurance is very high in the area.

@Stan Chigintsev , re CAPEX: I try to carry a $5000 reserve on every door to account for the major issues: roof, HVAC, major appliance, etc. That number can decrease as you spread your risk out across several properties.

As for vacancies, I think you'll be able to get tenants in should you lose one but I would budget two-weeks between occupants for turn-over. I don't know how often you'll be turning over tenants at that property.

Originally posted by @Ben H. :

@Edward B. , you are correct, insurance is very high in the area.

@Stan Chigintsev, re CAPEX: I try to carry a $5000 reserve on every door to account for the major issues: roof, HVAC, major appliance, etc. That number can decrease as you spread your risk out across several properties.

As for vacancies, I think you'll be able to get tenants in should you lose one but I would budget two-weeks between occupants for turn-over. I don't know how often you'll be turning over tenants at that property.

Thanks. So I should budget for at least 2 weeks of vacancy per year. What are minimum cleaning and re-painting expenses caused by a tenant turn-over?

Congratulations on your first property! And welcome (virtually) to NC. I'm a proud owner of a (somewhat) similarly situated duplex in Raleigh so here's my two cents on miscellaneous matters.

1) What exactly does "completely rehabbed" mean to you? From your basic description, I can imagine a ton of small things you could do to add value in the tenant's eyes and increase your cash flow, but I won't waste time telling you to do what's already been done.

2) Pros of renting to service members...As others have said I wouldn't expect any more than the usual wear and tear for a 20 or 30-something tenant (probably less). You may be able to minimize your vacancy time if you include more amenities or if you're willing to consider shorter term leases (possibly for a higher price). Looking up the current BAH rates for your area takes a lot of guesswork out of pricing for your market. And once you have tenants, their individual BAH rate is basically guaranteed rent money.

Honestly, my main concern about renting by a military base would be that most 18-30 year old (mostly single) people with little credit/rental history aren't exactly whizzes with personal finance.

That said, my day job is in multifamily leasing & we have our ways of attracting lots of no credit, first-time renters who become model tenants. I can usually get the tenant to apply with a high-credit cosigner by offering a very low security deposit. At my first leasing office, it was $200 deposit with a co-signer vs. $200 + 1 month's rent without. 

3) The main downside = SCRA. Hundreds of pages of federal legislation that protect service members & their dependents from having their property seized while they're deployed, on leave, etc. So it's all but impossible to formally evict a tenant who is deployed, and it could be very difficult - but not impossible - to enforce lease break fees, etc. 


NC is not a very landlord-friendly state, and you definitely don't want to go anywhere NEAR violating that particular law. Or any federal law for that matter. Get an appointment with a local landlord/tenant attorney ASAP to cover your bases. Even if you never rent to a service member, a good legal education will save you from a ton of headaches. Basic FHA, FCRA, accounting/banking requirements, eviction processes, etc.

I assume you own this property in your individual name - if you employ a property manager and they make a big enough mistake, you could get sued personally for the full amount of damages (and ignorance of the law is NOT an excuse here - I've seen that one play out). 

As everyone else has said, good PMs are pretty rare in the wild, and you have a long learning curve ahead of you. So take this time now to read up on how they're supposed to do their job, just in case you need to find a replacement :)

@Stan Chigintsev

As active duty military myself, I know that most of the younger single marines there are required to stay on base. Most of the guys that are allowed to live off base are after 3 years of commitment or if they are married, which will bring down the risk of ruining the property because of maturity and having a family. Also, most of those guys are there for training which is about a year. If they are there as instructors or an actual job, they will most likely be there for about 3 years. Just my two cents since I'm active military. Let me know if you have any more questions.

Vivek

Originally posted by @Risa Mendel :

Congratulations on your first property! And welcome (virtually) to NC. I'm a proud owner of a (somewhat) similarly situated duplex in Raleigh so here's my two cents on miscellaneous matters.

1) What exactly does "completely rehabbed" mean to you? From your basic description, I can imagine a ton of small things you could do to add value in the tenant's eyes and increase your cash flow, but I won't waste time telling you to do what's already been done.

2) Pros of renting to service members...As others have said I wouldn't expect any more than the usual wear and tear for a 20 or 30-something tenant (probably less). You may be able to minimize your vacancy time if you include more amenities or if you're willing to consider shorter term leases (possibly for a higher price). Looking up the current BAH rates for your area takes a lot of guesswork out of pricing for your market. And once you have tenants, their individual BAH rate is basically guaranteed rent money.

Honestly, my main concern about renting by a military base would be that most 18-30 year old (mostly single) people with little credit/rental history aren't exactly whizzes with personal finance.

That said, my day job is in multifamily leasing & we have our ways of attracting lots of no credit, first-time renters who become model tenants. I can usually get the tenant to apply with a high-credit cosigner by offering a very low security deposit. At my first leasing office, it was $200 deposit with a co-signer vs. $200 + 1 month's rent without. 

3) The main downside = SCRA. Hundreds of pages of federal legislation that protect service members & their dependents from having their property seized while they're deployed, on leave, etc. So it's all but impossible to formally evict a tenant who is deployed, and it could be very difficult - but not impossible - to enforce lease break fees, etc. 


NC is not a very landlord-friendly state, and you definitely don't want to go anywhere NEAR violating that particular law. Or any federal law for that matter. Get an appointment with a local landlord/tenant attorney ASAP to cover your bases. Even if you never rent to a service member, a good legal education will save you from a ton of headaches. Basic FHA, FCRA, accounting/banking requirements, eviction processes, etc.

I assume you own this property in your individual name - if you employ a property manager and they make a big enough mistake, you could get sued personally for the full amount of damages (and ignorance of the law is NOT an excuse here - I've seen that one play out). 

As everyone else has said, good PMs are pretty rare in the wild, and you have a long learning curve ahead of you. So take this time now to read up on how they're supposed to do their job, just in case you need to find a replacement :)

Thank you, Risa. I have not yet purchased it yet. Still thinking. I would likely transfer it to an LLC.

A question to everyone here: is flood insurance a must in this part of the town? According to FEMA it's not in the flood zone.

Also, what is minimum liability coverage do you suggest? Is 300k enough? 100k? 

Originally posted by @Vivek Shah :

@Stan Chigintsev

As active duty military myself, I know that most of the younger single marines there are required to stay on base. Most of the guys that are allowed to live off base are after 3 years of commitment or if they are married, which will bring down the risk of ruining the property because of maturity and having a family. Also, most of those guys are there for training which is about a year. If they are there as instructors or an actual job, they will most likely be there for about 3 years. Just my two cents since I'm active military. Let me know if you have any more questions.

Vivek

 Thank you, Sir. That helps. 

I’m in a military town, Air Force, Goldsboro NC and the good thing about military tenants is they can get in trouble with their CO if they aren’t paying rent or causing problems. You can go to the CO to help get cooperation. I want military tenants. That’s why I’m trying to invest in my town.

I have done business in Jacksonville.  It's my experience that you need get all of the specifics in regards to this piece of property.  Some lenders don't lend in Jacksonville because of high crime areas.  Look at the comps in the area see how the real estate industry is progressing in that part of the city.  Those comps are everything it lets you know how hot the market truly is and look for properties that have sold in the last 30 days.

Does anyone know if I'm required to have a flood insurance for a property on Onslow Drive, Jacksonville, NC, 28540. That's Bell Fork / Hawkside area of the town. If not required then is it strongly recommended or not at all?   My loan application was approved in a conditions that I well get a cheaper insurance that the current one, the bank got quotes from 3 insurers that I can choose from, but none of plans offer flood insurance and liability is 100k - 300k. I guess if bank did approve it without flood insurance then I don't need one? 

With regards to crime rates, all sites give different info! This one says it's very high crime rates in this neighborhood of the town: https://www.neighborhoodscout.com/nc/jacksonville/...

This one shows yellow:  http://www.city-data.com/crime/crime-Jacksonville-North-Carolina.html

But Trulia shows completely green - which is safest. Go figure. Any idea? 

https://www.trulia.com/real_estate/28546-Jacksonville/crime/

Originally posted by @Courtney Johnson :

I’m in a military town, Air Force, Goldsboro NC and the good thing about military tenants is they can get in trouble with their CO if they aren’t paying rent or causing problems. You can go to the CO to help get cooperation. I want military tenants. That’s why I’m trying to invest in my town.

I actually do not think that is allowed. When I was stationed at Leajune and tried to break my lease, the property management threatened to do that via text.  I showed up at base legal, and they not only found a loop hole in my lease to get me out, but also warned the PM that they would be essentially blacklisted if they ever caught again threatening a service member like that again.

Originally posted by @Stan Chigintsev :

Does anyone know if I'm required to have a flood insurance for a property on Onslow Drive, Jacksonville, NC, 28540. That's Bell Fork / Hawkside area of the town. If not required then is it strongly recommended or not at all?   My loan application was approved in a conditions that I well get a cheaper insurance that the current one, the bank got quotes from 3 insurers that I can choose from, but none of plans offer flood insurance and liability is 100k - 300k. I guess if bank did approve it without flood insurance then I don't need one? 

With regards to crime rates, all sites give different info! This one says it's very high crime rates in this neighborhood of the town: https://www.neighborhoodscout.com/nc/jacksonville/...

This one shows yellow:  http://www.city-data.com/crime/crime-Jacksonville-North-Carolina.html

But Trulia shows completely green - which is safest. Go figure. Any idea? 

https://www.trulia.com/real_estate/28546-Jacksonville/crime/

If your lender isn't requiring it, you do not need it. What can get pricey is the wind and hail insurance, which insures against storms (aka hurricanes). I have a $200k SFH and the wind and hail is about 1.25x more then my homeowners. My home is about a mile away Fromm the intercoastal waterway. The bank may not require you to get flood or wind and hail, but just remember you would be pay out of pocket for any damage without.

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