a multifamily investment case analysis

[Zhong Zhang]

Can you help me evaluate an investment case? I mainly want to ask if these assumptions are reasonable and if there's anything I haven't considered:

(1) multifamily units in NJ close to New York City, ~$1,000,000, 20% down payment, 

(2) Using the following assumptions: 4% appreciation rate, 6.5% interest rate and 5.0% refinance after 5 years, $10,000 yearly maintenance fee

(3) ~$6,000 monthly rental and assume 3% increase yearly with 5% vacancy rate

(4) Based on the above, the calculated IRR if selling at the 10th year is ~19% (considering tax benefits) and ~17% (without tax benefits). The tax benefits refer to the tax deductions from mortgage interest and property tax.

The returns mainly rely on appreciation, and the cash flow only improves in the last few years, also depending on securing the 5% refinance rate.

I've learned a lot from this forum, but as I start to operate on my own, I'm still not completely confident. I'm not expecting a yes or no answer - I would be very grateful if you could comment on the analysis above. Thank you very much!

[Shawn Mcenteer]

Hi @Zhong Zhang I have used vacancy hacks over the years to get personal properties under 1% when turning tenants over. 3% increase depends on renewing or getting new tenants, when renewing tenants that's  a safe amount.  When getting new tenants I've found the increase to be much more.  I enjoy tenants turnover ever few years for the reason fair market rents tend to increase significantly year over year.  This vary heavily town to town. 

20% down is great if buying strictly as investment but if you have a way of owner occupying I would explore that route and apply the 20% down to increasing value of property and instead using low money down loan.  It can accelerates process and can make numbers look very attractive (if you are open to renovations, does not need to be crazy)