Deal Analysis - Gloucester City NJ (again!)

6 Replies

I originally posted this a couple of weeks ago with some updated numbers. My initial cash-on-cash seems low, but I can't tell if I have too many dollars allocated towards property management (I'll be managing it myself), CAPEX, maintenance, and vacancy. I am leaning a certain way on the deal and I'm curious to see if other investors align with me or not.

Sales Price: 102,900, 25% down (assuming 5.625% interest rate on 30 year fixed)

C Unit in C Neighborhood, increases in quality could improve rent by $100-$200 p/m, estimated.


Income:

  • 2 units, total rent is $1750 per month / $21000 per year

Expenses:

  • PITI: $856 per month (444 mortgage, 67 insurance, 345 taxes)
  • PM: 10% / $175 per month (I will be managing for the foreseeable future)
  • CapEx: 10% / $175 per month
  • Maintenance: 8% / $140 per month
  • Vacancy: 8% / $140 per month
  • Water: Average is $129 per month
  • Flood Insurance: (Damn AE zone) is $57 per month (backed by private insurance)
  • All other expenses covered by tenants

The numbers

  • Cash Flow Per Door of $39 per month / $468 per year
  • CF of $78 per month / $936 per year
  • COCR of 3.03%

Value Add/My Questions:

  • Rents are low for this area -- rentometer, Craigslist, and 2 BR comps indicate 2 bedrooms should be in the 1000 to 1100 range per month. So even raising rent with some sweat equity to say, 925 a month, brings total rents to 1850 and the COCR to 5.5%
  • My estimate, perhaps foolhardy, is that PM expenses go back into the cash flow since I am self managing.
    • COCR becomes 12.71% and cash flow goes to $3,924 per year.

For those kind enough to review, I cannot tell if my underwriting on CAPEX, maintenance, vacancy, and property management is too conservative? Is the initial COCR without any value add too LOW to make this worth it?

@Joe P. - I wouldnt include it, or if you do, at a much lower rate then the norm.  I do my own PM on my properties; would like to note though that they are fully rehabbed, all systems updated, so I know I have little capEx and I thoroughly screen tenants so thankfully haven't had any issues.  Meaning I have very little PM responsibilities since I don't get phoned for repairs, etc.  To me, it's all about the time invested/spent at the property once it's rented out.  In the last 18 months, I've only been at my rental 10 hours at most (shovel snow, stop in to check on things).  

Hope this helps; to me.. i would do the deal you described. 

@Mike B. appreciate you weighing in. I'm having trouble finding any better deals and even with the new addition (flood insurance, wasn't expecting it) I feel like I can add some value to increase COCR. If I can't add value then it might be an option for resale in the future since I think the sales price is lower than market value.

Originally posted by @Joe P. :

I originally posted this a couple of weeks ago with some updated numbers. My initial cash-on-cash seems low, but I can't tell if I have too many dollars allocated towards property management (I'll be managing it myself), CAPEX, maintenance, and vacancy. I am leaning a certain way on the deal and I'm curious to see if other investors align with me or not.

Sales Price: 102,900, 25% down (assuming 5.625% interest rate on 30 year fixed)

C Unit in C Neighborhood, increases in quality could improve rent by $100-$200 p/m, estimated.


Income:

  • 2 units, total rent is $1750 per month / $21000 per year

Expenses:

  • PITI: $856 per month (444 mortgage, 67 insurance, 345 taxes)
  • PM: 10% / $175 per month (I will be managing for the foreseeable future)
  • CapEx: 10% / $175 per month
  • Maintenance: 8% / $140 per month
  • Vacancy: 8% / $140 per month
  • Water: Average is $129 per month
  • Flood Insurance: (Damn AE zone) is $57 per month (backed by private insurance)
  • All other expenses covered by tenants

The numbers

  • Cash Flow Per Door of $39 per month / $468 per year
  • CF of $78 per month / $936 per year
  • COCR of 3.03%

Value Add/My Questions:

  • Rents are low for this area -- rentometer, Craigslist, and 2 BR comps indicate 2 bedrooms should be in the 1000 to 1100 range per month. So even raising rent with some sweat equity to say, 925 a month, brings total rents to 1850 and the COCR to 5.5%
  • My estimate, perhaps foolhardy, is that PM expenses go back into the cash flow since I am self managing.
    • COCR becomes 12.71% and cash flow goes to $3,924 per year.

For those kind enough to review, I cannot tell if my underwriting on CAPEX, maintenance, vacancy, and property management is too conservative? Is the initial COCR without any value add too LOW to make this worth it?

 Hi Joe, just curious, did you end up going forward with the purchase and if so, are you satisfied with how things are going there? I am currently looking into Gloucester City market for investments.

Hi Alexandra,

I did end up buying the property at that price. It's going OK so far. Here's a couple of updates that might be relevant.

1. I'm renting both units for $950 a month. I think its a smidge higher than average for a 2 bedroom in GC, so my applicants weren't high, but the cash flow is better.

2. I totally missed how much stuff would go wrong. In the last year I've replaced a water heater, oven, fridge, oil tank, bathroom vanity...and those are the big ticket items. In other words, I didn't put enough money aside for maintenance, and I think the next property I'm going to walkthrough and TRY EVERYTHING, and make a punch list to fix. 

3. This town floods all the time. They have a combined sewer system and its like, permanently backed up or something. So if you view a property and you're interested, try and time a visit after a huge rain event. See if you have any roofing or basement issues because of that rain.

4. Check flood insurance maps - if you're in a flood zone or near one, it'll affect your underwriting for a loan and they'll require flood insurance. Most major banks will require a NFIP backed policy (mine only needed NCIP) but that adds to your monthly PITI.

Net-net...after a year, I haven't cash flowed yet, but I'm not losing either. I'm literally right on the line. Assuming I've hit all the property issues (I don't know how I haven't...jeeze.) I should be turning coin soon.

If you've got any questions or want to chat, let me know!

Originally posted by @Joe P. :

Hi Alexandra,

I did end up buying the property at that price. It's going OK so far. Here's a couple of updates that might be relevant.

1. I'm renting both units for $950 a month. I think its a smidge higher than average for a 2 bedroom in GC, so my applicants weren't high, but the cash flow is better.

2. I totally missed how much stuff would go wrong. In the last year I've replaced a water heater, oven, fridge, oil tank, bathroom vanity...and those are the big ticket items. In other words, I didn't put enough money aside for maintenance, and I think the next property I'm going to walkthrough and TRY EVERYTHING, and make a punch list to fix. 

3. This town floods all the time. They have a combined sewer system and its like, permanently backed up or something. So if you view a property and you're interested, try and time a visit after a huge rain event. See if you have any roofing or basement issues because of that rain.

4. Check flood insurance maps - if you're in a flood zone or near one, it'll affect your underwriting for a loan and they'll require flood insurance. Most major banks will require a NFIP backed policy (mine only needed NCIP) but that adds to your monthly PITI.

Net-net...after a year, I haven't cash flowed yet, but I'm not losing either. I'm literally right on the line. Assuming I've hit all the property issues (I don't know how I haven't...jeeze.) I should be turning coin soon.

If you've got any questions or want to chat, let me know!

 Hi Joe, thank you so much for such a detailed response! Lot's of useful info to think about. My husband drove through the area the other day and noticed some positive movement, such as retail business openings, new schools, etc. Logically, the town should get some inflow from people that are getting priced out of Phila, since it's right across the river.