Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
Hi all! I recently sold my SFR that I was renting out - it was my first home I decided to keep to "get into the biz" but the numbers just weren't working. I was able to get some proceeds from that sale and I'm ready for my first purchase.
I found a property in NJ (I am in PA - Philadelphia) close to me, and the numbers seem almost too good to be true. I hesitate to give away too much info so I will provide some raw information that I think should be helpful:
Purchase Price: $120,000
Financing: Conventional 25% down at 4%
Yearly Taxes: ~$4500 (thanks NJ...)
Units: 2 (one 3BR and one 2BR)
Area Rents: ~$1000 for a 2 BR
I've run the numbers at $2000 per month for both units ($24,000 annually) and a 10% vacancy rate...$21,600 in NOI
The mortgage would be around $1000 per month for PITI (perhaps even slightly less)...$12,000 in TOE
Cash flow is $800 per month
CoC Return is 32% (!!!)
Cap Rate is 8%
Unless I'm wrong, this seems like a no-brainer deal with great numbers as an investor, no? What am I missing?!
Hi all! I recently sold my SFR that I was renting out - it was my first home I decided to keep to "get into the biz" but the numbers just weren't working. I was able to get some proceeds from that sale and I'm ready for my first purchase.
I found a property in NJ (I am in PA - Philadelphia) close to me, and the numbers seem almost too good to be true. I hesitate to give away too much info so I will provide some raw information that I think should be helpful:
Purchase Price: $120,000
Financing: Conventional 25% down at 4%
Yearly Taxes: ~$4500 (thanks NJ...)
Units: 2 (one 3BR and one 2BR)
Area Rents: ~$1000 for a 2 BR
I've run the numbers at $2000 per month for both units ($24,000 annually) and a 10% vacancy rate...$21,600 in NOI
The mortgage would be around $1000 per month for PITI (perhaps even slightly less)...$12,000 in TOE
Cash flow is $800 per month
CoC Return is 32% (!!!)
Cap Rate is 8%
Unless I'm wrong, this seems like a no-brainer deal with great numbers as an investor, no? What am I missing?!
What is the neighborhood like? Schools? As a new investor quality of tenants is very important for me. I am staying away from high risk areas, even if cash flow is good. That's untill I get more experience .
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
8y
@Joe P. - Check to see what properties are worth now versus what they were worth 5-10 years ago. Make sure the area is appreciating or holding steady. A lot of real estate in NJ falls in value as the property taxes rise because let's face it, you can afford less 30-year financing in your mortgage payment when $500/mo goes to property taxes.
Use the Free Calculator on Bigger Pockets.
Rent (check out craigslist posts for similar units nearby - what does your renter consider equivalent?)
Vacancy: 5-10% (8% is 1 month/year/unit)
Capex: 5% (keeping things updated / reserves)
Maintenance: 5% (keeping things working)
Utilities: Any water, electricity, landscaping, trash, etc., you pay
Landlord License / Inspections / Fees / Code Enforcement: If any
Property Taxes
Landlord Insurance
Also contributing to ROI: Appreciation/Depreciation and Turnover Expenses in excess of Security Deposit
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
8y
Thank you to everyone who replied - let me see if I can adjust the numbers here slightly and respond to your questions/feedback (which I GREATLY appreciate!)
@Lana Lee: the neighborhood is blue collar. Schools aren't that great in NJ to begin with; the town reminds me of Roebling, NJ, if you've ever been there. Its got some grit to it but the proximity to Philadelphia and other nearby NJ towns is very good. While my renting experience is not as extensive as some, I've found "quality" tenants to be difficult in their own ways. I want to provide safe, affordable housing to people who need a safe and affordable home, and want to treat the property well. I don't consider the neighborhood to be high risk at all - my rule of thumb is that if I wouldn't live there, personally, I don't want to invest there either. I would live in this neighborhood.
Property Management - I believe most firms charge in the ~8% range? If so, assume $160 p/m at $2000 rental income.
Vacancy - was already applied (at 10%)
CapEx - will go with 10% to be safe, although we all know a new roof or something can blow that out of the water. Assume $200 p/m at $2000 rental income.
Maintenance - assume 5% although I think this is generous, so assume $100 p/m at $2000 rental income.
Utilities - assume I will pay water, which will probably be $75 per unit, so $150 p/m
Landlord License/Inspections/Fees/etc. - not aware of any
Property Taxes - already accounted for in PITI
Landlord Insurance - assume you are talking about a landlord policy? If so I've budgeted $120 per month earlier.
Bringing us home, I am adding $610 p/m to my total expenses (160+200+100+150):
$2000 per month for both units ($24,000 annually) and a 10% vacancy rate...$21,600 in NOI
The PITI would be around $1000 per month (perhaps even slightly less)...$12,000 in TOE
CapEx+ is $610 per month...$7,320 in CapEx+ (does this feel like a high number to anyone?)
Based on the above, clearing $190 p/m, or $95 per door.
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
8y
@Joe P. - ok so at 190/mo you're making a 7.6% return (ballpark) on your $30,000 (25% down payment). This is without any rehab or other cash costs like closing. Boosting your ROI is the tax advantage of depreciation over time.
I like to buy ugly, fix and refi. This requires more initial cash out of pocket but I get ‘free equity.’
In a year when stocks gain 15-25% without doing anything...