First Investment deal after 3 months on Biggerpockets

Real Estate Deal Analysis & Advice
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First Investment deal after 3 months on Biggerpockets

Herlando Y.
Investor · South River, NJ · Member since 2015 · 36 posts · 5 votes

Intention: Buy & hold

House info:
Fannie Mae Homepath Duplex
Built: 1970
Asking: 265,000
ARV: 285,000
Repair: 10,000 (Maybe: House is in great shape)
Down payment: 20%
Closing Cost: 10K

Income: 
  30K - 32.4K
Monthly Expense (+Mortgage&Insurance &Tax&Capex&maintenance&vacancy):
   24.3K

This deal does not look very good at first. If I add property management fee, I will break even and not earn any passive income. However, if I management the property myself and learn the trade by house hacking I can obtain about a 4-5% return eventually. Township tax assessed the property at 400K. Market value is hovering 270-335k. If I can get it reassessed for the current market value then I can potentially save 3k annually (adding value). That will boost my Cash ROI to 10% and will break even after 7-8 yrs.

Property has been vacant for 2 years. It did not sell during a sheriff sale last year November. Been inside the house and everything looks great. I do not see any thing structural and mostly just cosmetic touch up. Only negative about it is the electric heat, but the tenant will pay that. Neighborhood is okay. I say a solid B-. Mostly rentals nearby, but this property is at a dead end.

I will mostly likely be the only one bidding on it. Due to the freakish snow storm the 4 day window has been reduced to 1.5 days? However my agent is pushing me for a higher offer than my 250k. 

What do you guys think?

1Reply
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Most Popular Reply

Dustin Ruhl
Flipper/Rehabber · Indianapolis, IN · Member since 2015 · 204 posts · 89 votes
10y
For your very first deal I would pass. Also, don't let your agent push you into an investment that doesn't make financial sense. They always want us investors to pay more. Always remember it's not their money and they like to spend everyone else's. Be patient, if you have to look outside your market then so be it. Lots of great cash flowing properties elsewhere in the US. Quite a few good and honest turn key companies that can help you invest $250k into 3-4 quality assets. Good luck!
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  • Josh C.Pro Member
    Property Manager · Indianapolis, IN · Member since 2010 · 1k+ posts · 1k+ votes
    10y
    Always scary when it are the only local that likes it. Not that you are wrong. Just scary. Also, houses that have been sitting for a couple year have issues. Plumbing usually, but always something, so maybe bump your budget. How sure are you about that rent? Seems really high for B- Play Devil's advocate and good luck.
    1Reply
  • Herlando Y.
    OP
    Investor · South River, NJ · Member since 2015 · 36 posts · 5 votes
    10y
    Originally posted by @Josh C.:

    Always scary when it are the only local that likes it. Not that you are wrong. Just scary. Also, houses that have been sitting for a couple year have issues. Plumbing usually, but always something, so maybe bump your budget. How sure are you about that rent? Seems really high for B-

    Play Devil's advocate and good luck.

     I got comps for nearby rentals from me real estate agent. Most 1/2 duplex goes for 1500 and apartments goes for 1000 to 1300. I figured if I did a quick cosmetic overall, I can get at least 1350. On the plus it has a in house garage downstairs and it is really unique about this property. Basement is dry and no mildew. Overall the property is very clean. 

    It is a commuter town with mostly blue collar workers and the town is trying to gentrify. 

    I figure I get this under contract first and if there is something ground breaking wrong with it I can always just walk away. I'll only be a few hundreds or a thousand off and a lesson well learned.

    0Reply
  • Dustin Ruhl
    Flipper/Rehabber · Indianapolis, IN · Member since 2015 · 204 posts · 89 votes
    10y
    For your very first deal I would pass. Also, don't let your agent push you into an investment that doesn't make financial sense. They always want us investors to pay more. Always remember it's not their money and they like to spend everyone else's. Be patient, if you have to look outside your market then so be it. Lots of great cash flowing properties elsewhere in the US. Quite a few good and honest turn key companies that can help you invest $250k into 3-4 quality assets. Good luck!
    3Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    10y

    Tough to go into a deal as your first when you know you will be losing money every month and in order to make money there are a lot of variables at play.

    0Reply
  • Herlando Y.
    OP
    Investor · South River, NJ · Member since 2015 · 36 posts · 5 votes
    10y
    Originally posted by @Dustin Ruhl:

    For your very first deal I would pass. Also, don't let your agent push you into an investment that doesn't make financial sense. They always want us investors to pay more. Always remember it's not their money and they like to spend everyone else's. Be patient, if you have to look outside your market then so be it. Lots of great cash flowing properties elsewhere in the US. Quite a few good and honest turn key companies that can help you invest $250k into 3-4 quality assets. Good luck!

     Thanks for the input Dustin. I admit I am having trouble identify profitable properties around NJ. I think I need to spend a few thousand and commit a large portion of my time learning to marketing before finding an property that will cash flow better. I think i need a partner to go out side of NJ or even within NJ. I am attending an investor club tomorrow. Maybe I'll find someone to partner up with. 

    I currently do not have the resources, time, or knowledge to invest outside NJ. I say this because it is a reality for me. I travel a lot for work and I can't afford to go full time investor yet. 

    0Reply
  • Nina Gibilaro
    Flipper · Orlando, FL · Member since 2013 · 11 posts · 2 votes
    10y
    Where is this house ? Like already said don't let the agent push you to make an offer , do some reach in the surround area ( 3 mile radius) I have bought from home path before , I wouldn't worry to much about sitting if everything was turned off and protected correctly , ) if you really want to do a duplex try to find a cheaper one , Good luck
    1Reply
  • Herlando Y.
    OP
    Investor · South River, NJ · Member since 2015 · 36 posts · 5 votes
    10y
    Originally posted by @Michael Noto:

    Tough to go into a deal as your first when you know you will be losing money every month and in order to make money there are a lot of variables at play.

     I imagine most first deals are tough. Honestly I do not believe this deal to be that bad even if I do not make any money. It is lesson learn for next investment deal. I think I am buying on the lower end of the market and it will mitigate potential risk and cost.

    Hopefully as I learn more about the business I can create more value added plays. 

    0Reply
  • Melissa Gittens
    Real Estate Broker · Windsor, CT · Member since 2015 · 1k+ posts · 268 votes
    10y

    @Herlando Y. make sure the numbers make sense and start at the price point that you are most comfortable with. I would have to agree with @Dustin Ruhl don't let the agent persuade you into a deal that really doesnt make much sense financially. Best of luck!

    1Reply
  • Herlando Y.
    OP
    Investor · South River, NJ · Member since 2015 · 36 posts · 5 votes
    10y

    *Update

    Intention: Buy & hold

    House info:
    Fannie Mae Homepath Duplex
    Built: 1970
    Asking: 265,000
    Offer: 266,000
    ARV: 335,000
    Repair: 46,000 
    Down payment: 20% (53,000)
    Closing Cost: 10,000

    Cash Investment: 109,000
    Total Cost: 375,200

    Income: Monthly
    Units: 2
    Rental: 1550 
    Total: 3100

    Expenses: Monthly
    Mortgage: 985.51
    Tax: 829.58
    Repairs: 155 (5%)
    Capex: 155 (5%)
    Insurance: 81.67
    Sewage: 30
    Accounting: 50
    Total: 2487

    Cash Flow: 613 (5.6% Cash ROI)

    Biggest cost is the conversion between electric baseboard heating to gas. And replacing the roof shingles & kitchen appliances. Kitchen needs slight update, not sure how much I want to spend on that. If I can reduce the tax burden on this property, then i can potenially save 3k annually in tax

    I have been thinking about keeping it electric and get solar panels. Anyone have similar experience?

    0Reply
  • Lawrence Robinson
    Flipper · Columbia, SC · Member since 2015 · 66 posts · 29 votes
    10y

    Hello, Herlando Yuen. You have to match motivation with common sense. Why would you purchase your first property at a potential loss? The agent makes money whether you do or not and, furthermore, their bias is towards to the seller! You have made a wise choice, however, in planning to attend a local REI meeting. Often, deals will be presented from which you can pick and choose. Still, the numbers must make sense. Also, use the real estate calculators on BP to help make better purchasing decisions. Sometimes, the best decision is simply to walk away. Best wishes!

    0Reply
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