My wife and I are looking to buy our first investment property. Our primary goal is to create a steady passive income stream. We hope to be able to purchase around one property per year.
We are thinking of buying a 2 family home in Linden, NJ for $255,000. Needs about $5,000 of work to achieve desired rents. Each unit is 3 BD 1 Bath. Total rents should come in right around $2,900. Tenants pay utilities. Taxes are high at $10,900 - we are confident we can get them reduced through a tax appeal but are not coating on that for the deal to work. Putting 25% down ($63,750), 30 year mortgage at 4.75% = $1,000/month. Total PITI = $2,000/month. So that leaves $900/month to cover repairs, maintenance & vacancies. Vacancy rate for 3Bd in this area should be very low, so I'm estimating 20% (or around $600/month) to cover those expenses, which leaves us with $300/month estimated NOI (we plan to manage the property ourselves at least at the outset) Cash on cash would be about 5% annually. If we can get property taxes reduced by $100/month and rents of $3,000 (both very realistic) our cash on cash return jumps to over 8%.
We also strongly believe that area is ripe for growth due to excellent public transportation to NYC (walking distance to 35 minute train ride to midtown Manhattan).
Since this would be our first deal would love to get any feedback from this great community. Thanks!
This looks like a pretty good deal. How did you come up with the $5000 in work needed on the property? Did you already have it inspected by a professional? Depending on the age of the property, this number could be low unless it's been maintained very well and only needs cosmetic items like paint & carpet, etc.
Thanks for the input @Alok Sood it is greatly appreciated!.
The $5K is just for new paint, carpet and a couple of appliances. We are having it inspected and any additional costs that arise will have to be taken off purchase price, though I don't expect any issues there. The property was well maintained and kept in good shape (though kitchen and bathrooms are a bit dated). My biggest concern estimating ongoing repair costs. House was built in 1961, new roof put in about 10 years ago. That and the amount of work it will be to manage it ourselves.
Since it's our first purchase I'm sure we are making some mistakes here but hopefully nothing too drastic.
I come to a cap rate of 5.2% but if you are doing your own management it is about 6.9% Your cost of money is 4.75% so it would not be a property I would be interested in. If you can expect higher appreciation than normal, a reduction in taxes, and a increase in rents it can be a winner.
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