Is my RENTAL CALCULATOR BROKEN

[Christopher Veljkovic]

Hello everyone, I'm a newbie trying to purchase my first BRRRR or rental property and house hack with my family and I. However, the homes here in north NJ are over priced. I know its a sellers market out there, but all the deals that I have been analyzing are way off the asking price.....You know the home run number. I know that I have offer whatever works for me and what I'm willing to pay for, but the sellers are not even responding to me. I think my real estate agent maybe getting annoyed. Not sure if I am using the rental property calculator wrong (which I do not think I am). I am using the expenses portion to liberal? I don't know right now. Any tips would be greatly appreciated.

Also, if by the grace of G-D that the a deal goes through as far as a rental goes, anyone have a rock solid lease agreement  that I could use.  As long as it GREAT, I'm willing to pay for it!! 

THANKS BP FORUM!!!

[Jeff Copeland]

All real estate is local. You need to get to know your market and what cap rate and expenses are normal for the area (your realtor should be your primary resource for this info). 

Rather than "getting annoyed", he/she should be able to educate you and explain. 

Something like "Duplexes in this neighborhood are generally selling between a 4-6 cap. Your offer represents a 10-cap (half of what the property is worth) and is not even going to be considered by the seller. Let's discuss ways to make this more realistic." is way more useful and productive than "Okay, I'll submit another low ball offer if you want me to...whatever you say boss".

That being said, what cap rates are multifamily assets trading for in your market, and what cap rate do your offers generally represent? If you don't know, you might want to consider going back and reviewing these basic principles.

With regards to expenses, a well-managed property should run below 50% of gross rental income for expenses. So many investors use this "50% rule" when evaluating properties. 

So, if a property brings in $1500/mo in rent, and similar properties in the area are trading at a 5-cap, your analysis would look like this:

• $1500/mo x 12 = $18,000/yr Gross Rental Income
• Less 50% presumed expenses = $9k/yr Net Operating Income
• At a 5-cap, this property should be expected to sell for $180k*

(*$9,000 NOI divided by $180,000 acquisition cost = 5% capitalization rate)

With regards to lease agreements, they are generally state-specific. I'd suggest finding an attorney who specializes in working with NJ landlords and having them prepare your lease. For example, I pay $45 for lease prep by an attorney here in FL. The same attorney will usually them become a resource if you get into an eviction, security deposit dispute, or other legal matter.