Is this a good deal as my 1st invesment?

Question

I am new to real estate and new to BP.  Looking forward to hearing from everyone.

2 FAMILY HOME FOR SALE- Great Investment Property $199,999 Central, NJ
On the 1st floor is a newly remodeled apartment having 3 bedrooms, EIK, living room, laundry room and 2 bathrooms.
On the 2nd floor is 3 bedrooms, EIK, living room and 1 bathroom. Property has a large back yard with driveway access.
Income property break down: 1st flr: $1450/mo. 2nd flr: $1410/mo. Gross income total: $2860/mo.
Operating costs: Utilities: $670/mo. Insurance: $90/mo. Taxes: $370/mo. Gross operating expense: $1130/mo.
Net income: $1730/mo.
Financing Options
Option One: 100% Financing to QUALIFIED Buyers
Option Two: 20% Down Payment-Owner Will Hold Mortgage

Thank you,

MJ Singh

Raymond Williamson · Answer

I agree with @Eric Thomson  about factoring in maintenance and vacancy cost. I would be a little more conservative and factor in a little more for 2 reasons; first this is your first investment and you will be on a learning curve, secondly it looks like the second floor has not been updated so you will have to either update it yourself for will have to start repairing things soon.

I have few other questions here. Why is the seller selling (sounds motivated)? You can definitely negotiate the price down or for favorable terms. Do you have the reserves to put down?  Are you managing it yourself or are you going to have a company step in? Do you have experience in construction or do you need to contract out all the repairs? Is it rented out and how long is left on the contracts? How much will you be receiving in security deposits from the owner? I could go on with the questions but my point is that you need to open up the lines of communication with the seller. If the seller is distressed you could be sitting on a gold mind after negotiations or the seller could be looking for a sucker to take over their problem. If they have a problem it is a good thing (that is what we look for), as investors we are problem solvers as long as the terms are good.

MJ Singh · Answer

@Eric Thomson  is 60 months a normal time to break even or is it too long?

$660 seems like a good cash-flow over $300 per unit.. Thanks again for breaking that down.

@Alexander Flores  I'm also a numbers guys and think it would be great to network.

Look forward to getting to know you better..

Eric Thomson · Answer

MJ, I am estimating based on a 8% interest rate for owner finance (which may be too low). That's about $1175 per month, plus your taxes and insurance makes that $1635 per month. 20% of rent to fill your vacancy/maintenance war chest. Total monthly expense around $2200. That will net you around $660 per month. That's actually about 60 months to break even at $40k investment assuming a full 10% in vacancy and repairs.

Alexander Flores · Answer

@MJ  Singh I actually have yet to start haha. I have been on BP and reading about REI since about October but just recently have really gotten into it. I am buy and hold also, looking for cash flow being my concern as long as my numbers work. I am a math/numbers guy so I get into analysis paralysis very easily. I am also very conservative with everything. I look mainly in Ocean and Monmouth Counties and wish there were more MultFamilies as up near you. We should definitely connect, I sent you a colleague request.

MJ Singh · Answer

@Alexander Flores the property is in Middlesex county and it is nice to see someone else that is close. How long have you been investing and what are your goals? As you can see I am going for cash flow.

Alexander Flores · Answer

@MJ  Singh Yeah your net income per month would be $1158 and for the year $13896, that is with factoring in 10% for maintenance and 10% for vacancy into your expenses. So it does seem like a good deal. I am too from New Jersey, Ocean County, so it is nice seeing someone else from the area buying and holding. What county is the property in? (Central Jersey means different things to different people)

MJ Singh · Answer

Thank you both for the awesome feedback.

I have enough money saved for the down payment at 20%.

But like you said it might make sense to do 100% finance if its a good rate.

@Eric Thomson  Can you show how you did that math with  $40,000 down?

Has anyone re-metered a property before and I agree with you about considering it upfront costs.

@Raymond Williamson

I loved all the questions you made me think about and would love to get more questions to say the owner, please keep sharing.

Do you have the reserves to put down? YES I DO

Are you managing it yourself or  are you going to have a company step in? '

I would manage the property as it is only about 15-20 mins away.

Do you have experience in  construction or do you need to contract out all the repairs?

I would be contract out all the repairs.

I will open up the lines of  communication with the seller and get to know his problem and see if there is a solve for it.

What other questions would you ask the owner?

Eric Thomson · Answer

Hello MJ,

Welcome to BP and to real estate investing!

First off, I would recommend adding maintenance and vacancy reserves of around 10% of gross rent per month each to your expense estimates to be safe. Also, I would never cover utilities for tenants. It could be a big upfront expense to have them re-metered if necessary, but I would advise it and consider the upfront cost. If you can get 100% financing at a reasonable rate then I think the numbers look pretty good. At $40,000 down it could take you around 4 years to break even if you aren't paying utilities and never have any vacancies or repairs. Of course this all depends on the rate the seller is willing to give you on financing.

Is this a good deal as my 1st invesment?

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