NJ Multi-Family House Hack - Calculation Correct?

[Brian Martin]

Good Morning BP,

Reaching out for guidance on using the Rental Property calculator for a Multi-Family NJ house hack where I will live in one of the units.

My partner and I are currently in the Central NJ part for a side by side multifamily property that we can purchase and start building equity.  We are just getting started and open to working with knowledgeable agents and other services providers.  Please feel free to review details below and shoot me a message if central NJ is your primary market.

https://www.zillow.com/homedetails/219-W-Summit-St-Somerville-NJ-08876/39914137_zpid/

After running general numbers (not 100% accurate due to lack of experience) through the calculator, my eyes were opened by a -5.83% CoC ROI. I understand that NJ is a high priced market but am wondering if this is truly accurate…

Primary questions:

1. Should gross monthly rent be entered as if it was not a house hack?
   1. I ran numbers as if it was not a house hack and both units were being rented. My thought process was to just “pay” rent to myself.
2. Is the 20% down payment driving factor behind the negative CoC return?
   1. I prefer to go this route to avoid PMI. Open to consider less money down but feel doing so would also decrease the strength of future offers.

Below are some of the calculation inputs for how we estimated the property:

Purchase

• Purchase price: $419,000
  • There was a lot of interest. I am assuming it will sell for higher than listed price.
• Purchase closing costs: $10500
  • Based on 2.5% closing cost
• Rehab: $0
  • Property was a bit outdated but no need for immediate work

Loan Amount

• Loan Amount: $335,200
  • 20% down. I realize this may not be necessary and there are many options to tie up so much capital in the property.
• Interest Rate: 4%
  • General estimate
• Loan Term: 30 years

Rental Income

• Gross monthly income: $3500
  • Estimating $1750 per unit. Somerville is in prime NJ location with close access to large Pharma companies and rail line into NYC within an hour. Also there are a number of large “luxury apartment complex” projects under construction. I am assuming these companies conducted serious due diligence on future area growth prospects prior to moving forward.

Expenses

• Property taxes (Annually): $13000
  • Obviously not ideal. I would much prefer a municipality that was more in the $8000 to $10000 range. Assuming NJ taxes are always going to be an issue.
• Insurance (Annually): $1500
  • General estimate
• Monthly Repairs & Maintenance (5%): $175
• Monthly Vacancy (5%): $175
• Monthly Capex (10%): $350
• Monthly Management Fees: N/A as it will be self managed.

• Electricity: $300
  • Both units
• Gas: $100
  • Both units
• Water & Sewer: $50
  • Both units but not sure if that amount is accurate