All Forum Posts by: Mike A.

@Mike A. - revisting our conversation and your deal. How's it going so far?

@Mike A. as an Maryland/DC attorney who practices in this area, I have to ask what you are looking to accomplish by sending a letter. There are a plethora of issues that you could possibly be confronted with and so it is important to know your goals and not subject yourself to punishment for doing good deeds. Depending on your jurisdiction, there could also be issues with FHA discrimination and things like that. If your jurisdiction considers source of income a protected class, it could be problematic if and how you treat tenants differently based upon their source of income. (@Vinny Maida - be careful with this...).

@Mike A.The rental market is still quite strong. I haven't experienced any issues renting out places recently through. 

Did you move on with deal? I thought, for buy and hold investment, over 10% cash on cash return is considered good in hudson county. 

@Mike A. I'm in Gloucester City, NJ. Blue collar down about a stone throw away from Philly over the Walt Whitman. 2-bedrooms rent for about 1000 per month, 3-bedrooms are about 1300 per month. You can pick up SFH distressed around 40k, mid-range for 60k, and perfectly rehabbed for 100k. Duplex prices are in-line with SFH, making them excellent long-term buys for cash flow.

Here's the thing with your analysis -- respectfully (and I do mean that, I'm not trying to be a jerk in an online forum), I just disagree with almost every number you've input in the calculator.

• Are your closing costs really 5k? I doubt it. Even a modest closing cost percentage like 2% would be about $13,600.
• Have you confirmed your interest rate on a 25-year loan? 3.9% seems like something a SFH "forever home" buyer would get. Investors typically pay a premium on the regular rate. 4.5% and upwards is probably where you will be.
• Again -- you've accounted for no real expenses in your analysis. If a unit goes vacant, that takes away from your income. If you have to replace a heating unit, that's an expense. I understand you do the work yourself, but you are managing this with your time, fixing it with your time/money...it seems like you put a gigantic black hole over the real costs of your property.

On my duplex in 2019, I had a rough year. My income was about 22,000, but my expenses were almost 12,000 -- a little over 50% of my income, not including PITI. And when you did your calculations in the BP calculator, I KNOW for a fact it gives you a category called "50% Rule Cash Flow Estimates" -- taking your income, and subtracting 50% for expenses and your PITI. It's a more realistic way of estimating actual cash flow on a deal like this. Some years you'll do great, and some years you won't, so having that 50% baseline is your "middle ground". Dollars to donuts in the report you snapshot that from, it's an extremely negative number in your calculator.

We all have different risk profiles -- I want to make money even in down years, or difficult years, when I have big CAPEX items to pay for (you will, roofs, appliances, turnover...they all need to happen and cost time, money, or both), tough vacancies to fill, etc. So my risk profile is extremely conservative.

I continue this discussion with you,because you may be an experienced investor with the means and knowledge to handle a property in this risk valuation. However, a newbie investor (or even myself -- I'm not a "handy" person so I have to outsource maintenance and CAPEX) would see this and think its a great deal. In my opinion, based on my limited experience both on the ground and theoretical, this property would cost an investor like me money every year, or perhaps show a false income before needing to take care of serious CAPEX issues, vacancies, or turnover costs.

If I can put a real world application in place, which is where I think you are headed, let's say you cash flow about $1500 per month, or 18,000 per year. If you had ZERO expenses other than the categories you indicated, you would get your money back on your initial investment in 10 years. And that's accounting for NOTHING going wrong or ever spending a single dime on any aspect of the house, and having FULL tenancy for the length of that time period. Say that sentence out loud -- does that make any sense or sound realistic to you? You won't have to replace or even fix part of a roof in 10 years? You won't have to deal with a vacancy for a month? You won't have something requiring a fix-up, tenant turnover, an eviction, a trashed unit, etc., that would cost you time and money? If you don't think anything like that would happen in 10 years, you're lying to yourself AND you are not prepared for it. Which means your cash flow that you think you are getting is actually far less than that.

I also encourage you to tag other very serious and experienced investors (try Brandon Turner, Russell Brazil, Jay Hinrichs, et al) to see if they will respond to this thread and offer their experience on your analysis. My parallel point to warning other investors with your analysis is to warn you -- I think you are headed for a rude awakening at some point. You aren't supporting this property with real dollars -- again, in my humble and very respectful opinion -- and I'd hate to see a fellow investor hit a wall.

@Mike A. it's called "Green Dot"; just so happened to see the commercial tonight. 3% yield on their accounts -- just checked their website and its 3% on first 10,000 only. Looks like most HY savings are running 1.75 to 1.8%. Again, if you want no headaches and you're in it for cash flow, would you do a property for no appreciation at 3% or just a HY savings at ~2%?

I'm primarily interested in cash flow. I realize you are N. Jersey and there may be "slim pickings", but if you have the ability to expand to more fruitful areas, you might want to put your money there. If this is the peak market and you aren't buying for appreciation, and don't have great cash flow, then I'm sorry to ask -- what the heck are you investing for?

I'm with you -- I want to become a better investor, and I have less units than you (I have a duplex and was under contract on a buy and hold before corona hit), but if I had your cash I'd want to invest in areas that cash flowed better, could appreciate, or both. I could be missing something...

@Mike A. Investing in Northern NJ and hitting financial targets often posted on BP is challenging and in some instances impossible, that being said I wont talk numbers here as you deemed them good enough to put the deal in play. Here are my thoughts on your initial questions:

Are we concerned for no reason? Pandemic issues aside If you liked the deal enough to place it under contract you shouldn't have any additional concerns regarding vacancy, the rental market is still strong as the ads that I have for rental listings have only seen a 10-15% drop in inquiries and requests for showings, by the close of this week I will have leased 3 units for clients over the past 10 days in rental markets that arent as strong as Jersey City.

Should we request a price reduction? I don't think so, there doesn't appear to be any grounds for a reduction, perhaps the offer amount should have been lower initially if you are concerned about how the numbers look on the deal

Overall many people seem to be waiting for drastic reductions in prices due to the pandemic that I don't think will happen. Multi family sales are still strong, here's whats going on so far in Northern NJ:

 Prices are largely holding firm, with few exceptions listings are still posted new listings and closings are still happening in the market daily. 

The biggest change so far is showings arent happening as much or they're being done virtually and inspections (and title searches) are being delayed or done in a different matter which is delaying closings.

@Joe P.

Hey Joe, great and detailed response! But based on the deals I've seen in this area, especially Jersey City, Jersey heights, etc are madness i don't think will ever meet 1% rule. And the moderate priced deals are in the worst shape. Going through this one would never be able to invest in any property out here unless, Corona effect slashes the prices.

Mike -- well you have 12 properties, so I'm assuming you're doing something right. We're just different investors -- I want to put my money to work to pay me positively per month. If my properties appreciate, that's an added bonus, but I invest for cash flow. I don't have properties in Philly (at the moment) because they are, as you said, an issue for monthly return.

This seems like a big investment for very low return at a peak market. I am concerned for you as the price you are paying is peak market, market rate (assuming), with only $1500 going back to you. You might do all those repairs yourself, but that still costs time and materials, and like I said, I think its a great deal for your seller. I wish I was them right now -- I am selling at a pre-corona price, peak-market, and getting out of a property that probably did well for me.

Proceed as you'd like -- you've asked for feedback, and that's my feedback. If I can't make money in a market, then I'm not going to invest in that market.