After looking at over 2 dozen properties, I think I found one that is interesting to put an offer on. Based on the stats below, I would love to hear some opinions on the worthiness of the investment. My area is North New Jersey which is notorious for high prices on multi-units and very low inventory
3 family house, 2 car detached garage and driveway.
listed at $345k, hoping to pick it up around $320-$325k
3 units to rent, a 3 bedroom, a 2 bedroom, and a studio
Current rents: 1300, 950, and 650
Taxes: 7000, (flood insurance is required although unit does not seem to show signs of previous flooding in last 2 major storms, electrical from 1990 and gas furnace is over 10 years old)
Flood insurance: $1600 (450k worth of coverage)
I got approved for a mortgage at 5% rate after 25% down.
What do you guys think? I did my research and even with the 50% rule, property shows a decent return.
My analysis, assuming 50% (i.e., using a PM).
Payment: $1288 (5%, 30 year)
Expenses, Capital, Vacancy: $1450
Cash flow: $161/month
Cash on cash return: 2.4%
Cash on cash is too low in my book.
Based on your numbers I'm getting
$1,450/month after the 50% rule. I've heard that the 50% rule may not be enough on multi family units especially since you mention that there is a flood insurance requirement and an old HVAC. But let's use the 50% rule anyway.
Purchase price $325K
Est. closing cost: $5K (just guessing, but I suspect I'm low)
25% down and 5% financing gives a monthly payment of $1,309.
Positive cash flow of $141 / month
$86,250 cash down give a CoC return of 2%.
Need to offer less in my opinion.
The problem with this property is that the NOI/purchase price is about 5.4% while your cost of money is 5%. You don't have a large enough spread.
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