Should I pursue this deal?

7 Replies

Hi everyone, I'm trying to analyze this deal. The numbers looks awesome to me, but I'm struggling to find financing that will make it worth buying the deal. It's a 6 unit property in Keansburg, NJ. Total Rent = $5,775.00/month... $69,300.00/year Total Expenses = $27,935.00/year NOI = $41,365.00 The asking price is $389,900. I think the numbers look good, but I have no experience and I really want to get started in real estate investing. I don't want go jump into a deal just to get a deal done. So I'm looking for someone with experience to analyze this deal and let me know if they think it's worth looking for financing. I can probably manage to put 10% down, too. If there's any additional info needed, please let me know. Thanks, Kyle Shook

Did your expense numbers include property management?   If you intend to do the work, that is fine, but if you want to run the numbers as if it were a business deal, include the cost of property management when analyzing the numbers.

What are the breakdown of the expenses?

@Kyle Shook - Checking your profile, I would suggest to spend more time on training and education. There isn't much details to comment on deal. 

Also please remember what is a deal? 

what you bring to the table to make sure it's not a deal for the next investor?

Good Luck

Vivek

I didn't account for management but yes, I plan on having management in place so I will include it in the breakdown. Real estate taxes -- 12,892/year...1,075/month insurance -- 9,363/year... 780/month water/sewer -- 5,080/year... 424/month landscaping -- 600/year... 50/month prop. man. -- 7,200/year... 600/month Total -- $35,135/year... $2,930/month I tried looking into a commercial loan, but they wanted 2 points plus 10 percent interest. And I would need to put down 10% of my own money. I'm trying to find something better. Any thoughts?

Are you accounting for vacancies, repairs, capital expenditures in those numbers? Those add up.

@Erik Pfundstein , no I didn't. Could take 10% out for those in addition to the other expenses for a total expense of about $3530/month. Rent - Expenses = 5775 - 3530 = $2,245/month

@Kyle Shook , I took some time to run the numbers on your property. Here are some of the assumptions I made:

  • Commercial loan with 25% down @5.5% for 30 years. 
    • You'll need a commercial lender since this is a property with more than 4 units. I've heard many commercial lenders tend to prefer giving balloon loans (3-5 years) which is something you'll want to take into account. Since this is your first investment property, you're probably going to need to put a lot more than just 10% down.
  • Vacancy: 8%
  • Repairs and Maintenance: 10%
  • CapEx: 10%
  • Property Management: 10%
  • Sales Expenses: 5.8%
  • I also increased the taxes slightly to be more accurate for this area

As you can see below, the numbers don't work out well at all. I'd be curious to hear what others think of my analysis... 

Overall, I think jumping into a 6 unit property as your very first investment would be like jumping into the deep end of the pool before learning how to swim on the shallow end. I personally recommend first going for a SFR or duplex to get the basics down and then go from there.

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