All Forum Posts by: Steve Wilcox

Try the BP rental calculator for a start. As you learn more and have more specific needs you can modify or make your own model to work with. 

Newark is a tough city, I invest in Newark and have learned alot but it is not for the faint of heart. Pretty much anything west of rt 21, and south of rt 280 is tough especially for first time landlords. I use a professional manager to help, but am still very hands on as the management portion of these properties is very active. 

You want to have at 3 bedrooms in the unit you plan to rent out so you can get maximum revenue. Realistic rents for Newark are around 1100-1300 for a 3 bedroom in most parts of the city depending on condition. 2 family properties are much easier to find at a discount then 3 family, but obviously the more units the more gross income you will have to help offset the cost of your mortgage. New construction style properties are the most desirable, and will give you the least problems operationally if you can find one at a reasonable price. For rehabbed product we are seeing new construction style 2 family for about $225, older and rehabbed larger 3 family for about $300 in Newark

Feel free to ask any more specific questions. 

Hey @Donald Placide you are way ahead of yourself. Others have given you solid info on FHA, limits, ect and the best bet is to get it from the horses mouth and call a banker

Focus on navigating the first deal successfully and build from there. You do not need to know what your going to be doing for your 5th or 6th deal when you have not closed one yet. 

FHA is for owner occupants only, you must live in the property for at least 1 year. The areas with live-able triplexs selling for under $150k in north jersey are ROUGH.

After you have navigated your first deal you can reevaluate your goals with all the new knowledge you have acquired from doing one transaction. It is important to set a destination or goal, but also do not get to bogged down with details that are irrelevant to you at this stage of the game. 

Here are some action steps to take:

1. Talk to a few mortgage brokers and bankers and see what you personally could qualify for. Keep in mind any traditional purchase of investment property will require 20-30% down in the current market, but an owner occupant can purchase with FHA loan for 3.5% down. Consider living in the property, based on your cash it may be your only option.

2. Go out and look at some of the areas you are planning to invest in, take a few hours and drive around the area, do some online research about the area, and if you like it start making offers. 

I invest in Newark, NJ and am knowledgeable on that city as are others on the forum who can chime in to specific questions. 

What are the towns?

When are the houses up for reassesment? Look up the tax rate for both towns to help verify what you are seeing. 

One may be recently assesd and could have gone up the other may be reassesd this year and it could go up as well.
You dont want to be anywhere near the highest you can afford if you plan to invest, (especially if you want to buy and hold) as your debt to income ratio will be to high to take on additional debt to secure rental properties. As @Ned Carey said buy the cheapest house you can get buy with especially when you are starting out.

A little personal story- 2 years ago we sold our house in a nice town with high taxs and moved into a smaller condo in a town with lower taxs. We used to owe a bank almost 500K with 12K of taxs a year, and now we owe about 85K with 3.5K in taxs. Qualifying for financing for our investments is so much easier since our mortgage payment, our amount of money borrowed, and our tax obligations are less then half of what they were before. When we have kids, or care about the schools (in theory we will own a larger portfolio of rentals and more cashflow) we will have built up our passive income and be able to move back into a more expensive town and keep investing because we will already own a strong performing portfolio of cashflowing properties. 

Welcome to BP. 

I am a full time buy and hold investor specializing in Newark, NJ. 

Section 8 is not necessarily easy to find as they know they have the golden ticket in the city. Most Newark landlords would prefer the government section 8 rent so there is competition to get those tenants. 

Realistically section 8 tenants take 1 month between the time they decide they like your place, section 8 updates their voucher info, section 8 schedules the inspection, you get results of inspection, and finally they move in. Most of these people can be a challenge to find as many do not look online for apartments or even have the internet to email. 

Also management in Newark is a JOB. I believe very strongly in the city, the opportunities there, and the potential for some future pop. If you read the commercial deal decks on properties in Newark it has all the factors that should make it a great investment, however it can be a challenge. You will most likely want/ need a professional manager, and an onsite team in place as low income tenants require heavy management and lots of repairs, ect. 

If you want to get a cup of coffee and check out some of our current projects in Newark PM me, also I can help you with some local resources if you are interested. 

Use the 50% rule as a rule of thumb for expenses (expenses will be about 50% of income over time)

You have not given enough info to give you sound advice. 

Is the building currently occupied, cash flowing, what are the status of the leases, condition of the building? The biggest thing is to be aware of the leases in place and strength of the tenants credit. When you buy this type of building you are really buying the leases not necessarily the building. 

What are the market rents for similar products in your area, what is the vacancy rate for your product type in your area, what are the good leasing agents in your area seeing?

You should find out who the players are in office leasing in your area (specifically the type you have i.e. small boutique, medical arts, large single tenant, ect) and set up meetings with them. Talk to them about the specific building you have, the future or current vacancy numbers, get an idea of rates you might get if you went to market for new tenants and how long it would take, what their commission structure is (often different from residential agents). 

Next talk to whoever you think is going to finance the building, share your numbers and projections with them and see what if anything they can do for you. Talk to 2 or 3 more local smaller banks or credit unions and make sure your terms are competitive. 

If all looks good, the building has good leases, and strong tenants, and you want to be in the office space field in north NJ in the future then buy the building. 

Legally if it is not a 2 family property you can not rent the space. If you ever end up in court with a tenant issue you could be asked to pay them bath the rent they paid you, be fined, ect. You may however be able to convert the property into a legal 2 family depending on zoning and approval. 

Legally you can use some of the space for a home office, especially if you own a business and write off a small percentage of your housing expenses asoicted with your 'office' I do not think you can legally use it for a hair salon, retail, doctor office, ect. 

If you have a close friend or family member and want to rent to them and you are ok to work out any issues that might arise between yourselves without court intervention then you may have a 'room mate' to help with your mortgage

I am not an attorney or accountant. 

queens and BK are different animals than NYC

Materials in NYC are much higher priced, we did a small reno for a friend and went to a city lumber yard- it was actually a drive through, and we paid ove $8 per 2x4x8, which is closer to $3 in north NJ

Be prepared to pay a location premium the same way you would have when you bought the pace

It depends on what your appetite and your resources are. 

You can get very strong cashflow for a lower capital investment in more urban towns like Trenton, Newark, Elizabeth, ect, but they require a lot more work or good management team, 

If you are not as concerned with immediate cashflow there are some areas around rutgers (probably the best student market in all of NJ), or robbinsville near TCNJ. 

You need actual comps to asses the sales price. 

Your brothers concerns of b and c will be the same concerns that all buyers will have

If you are serious about this house you could submit an offer or make sure the buyers are serious about your price, and if so you should pay for an appraisal during your inspection period and make sure there are comps to support your valuation and to support an appraisal for your future buyers mortgage. 

In this thread your ARV idea has gone from 800 to 650, you need to know that a lot better before risking taking on a big project like this and laying out a ton of cash.

Also have you spoken with any construction lending banks (two rivers, provident, valley national, community first, and small banks/ credit unions) and make sure that you will be able to secure financing? If they are not wiling to play have you spoken with HML's?

My advice is to do the following

1. find out if you can actually finance the project

2. Find a reputable appraiser and ask them to do an arv and appraisal (your lender will require it anyway, you can ask that they pick the appraiser and you will prepay for it) in order to make sure its actually a good deal and firm up your arv numbers

You can always put it in the BP rental calculator

If your rents are realistic, and you say about half of that is going towards expenses (a generally fairly accurate number) then your net each month is about $1650 per month

Your mortgage payment will be about $950 per month

Net cashflow on paper based on the numbers your laid out is very solid at around $700 per month, and about a 9% cash on cash return. This is a good deal, assuming you can actually get $3300 in gross rent. Cashflow is very solid and cash on cash once stabilized is also pretty good (not a home run), but for getting a property in a decent area, hopefully securing long term financing at a low rate. 

You should have a realtor or appraiser pull some comps, as I think your equity position may be a bit weak if the house is only worth 300-330, but if you are holding it and you can get the rents you think this is a good deal, move forward!