Newark NJ - 2 Family - Good Deal?

[Fran Rivera]

Hello,

I am working on my first deal to get a 2 family home in Newark from a friend of a friend. I am just analyzing the deal to see if it makes sense. I live in NJ and I am familiar with the area. 

Zillow estimate = $250k

Rents = ~1200 per unit = 2400

Owner owes bank about $150k - Can i negotiate with the bank? Offer say $100k

Needs alot of work. Flood damage and furnace is not working.

I still need to see the place, but before that I want to see if it even make sense.

Here is what I came up with, just guesses for now. Please let me know if I am missing something

Thanks!

[Dan Barli]

@Fran Rivera, I would caution against using Zillow for an accurate estimate on the property. Have you spoken with a realtor to get a CMA done on the home? If you are looking to negotiate a lower payoff with the bank, you are essentially asking them for a short sale. Is the current owner delinquent on the mortgage payments? If they are current, are they just looking to get out and willing to bring cash to the table to close?

[Tim McKelvey]

@Fran Rivera

@ Dan Barli has some good comments.  

In addition, I see two thing looking at your analysis. First, you have CAPEX at $24. I suspect you meant $240 (10%). That will hit your cash flow over $200/mo.

Next, I do not see a line for insurance.  I see PI, and property taxes, but not property insurance.

Cheers,

[Mike Kostner]

@Fran Rivera Where in Newark? The answer wouldn't the same for say The Ironbound as for the SW Side.

[Fran Rivera]

Thanks for the info!

@Dan Barli - I have not spoken to a realtor to get a CMA. I will look into that. I will find out if they are delinquent, but I think they are or close to being delinquent on the payments. They are definitely looking to get out of the property.

@Tim McKelvey - I will adjust. Good catch! How do I figure the CAPEX and the insurance?

@Mike Kostner - Upper Vailsburg section of Newark

[Dan Barli]

Good luck Fran!

[Tim McKelvey]

@Fran Rivera

For taxes rates, your city and county websites should have the info.  If you own a home in the same city and county, just look at your tax .

For capex, think of the major items that will need to be replaced, and how often.  Roof 25-30 years, a/c 15 years, kitchen appliances 5-10 years, flooring ??? Years...

Get quotes for all these items and divide by number of months (30 years =360 months)  This is how much you need to set aside each month for capex.

[Dennis M.]

@Fran Rivera Does the insurance know about the flood damage and will they even insure the house when it switches hands ? I suspect your not going to make much profit on this deal when you get everything calculated out . 30k can get eaten up pretty quick with water damage

[Syed H.]

Ive seen a lot of houses in Newark, I doubt your $30,000 repair budget will be enough. Looking at least $50-$75k depending on the level of damage.

[Fran Rivera]

 @Dennis M. - good point about the damage, but I haven’t seen how bad it is yet. I’ll have to get some estimates and the look into the insurance on the property and what the cost would be 

@Syed H. that’s helpful and I’d rather over estimate now to be safe

Any ideas what would be a good purchase price for this to be a good deal?

[George Blower]

@Fran Rivera

Welcome to Bigger Pockets.

[Ibrahim Hughes]

if nothing has been updated on the property in the last 10-15 years then it likely needs a full rehab. Add the fact that there's flood damage, depending on how extensive and the size of the property, and you could be looking at $100,000 - $110k in repair cost.

[Fran Rivera]

@Ibrahim Hughes - Thx for the input. Is it common to invest 100k in property in the Vailsburg section of newark?

Seems like it would take almost 10 years to get your money back. I am thinking the rents would be $1200 per unit on a 2bed 1 bath. 

I am a total newbie, so please correct me if I am wrong.

[Ibrahim Hughes]

Originally posted by @Fran Rivera:

@Ibrahim Hughes - Thx for the input. Is it common to invest 100k in property in the Vailsburg section of newark?

Seems like it would take almost 10 years to get your money back. I am thinking the rents would be $1200 per unit on a 2bed 1 bath. 

I am a total newbie, so please correct me if I am wrong.

 Hi Fran. Yes it's common. But the house would be a total rehab which you would get at the price of a total rehab. I probably wouldn't pay any more man 90 - 100 k for property like that in vailsburg section Newark (lower vailsburg to be exact). And it should probably have off-street parking. I think they are actually going for a little bit more but I'm not trying to pay Max retail. 

And actually I'd be looking to personally pay a lot less. Only because of my guerilla style marketing. But generally speaking yes you can put that kind of money into the property if you get it at the right price. Do the rehab right and you would make the money back and then some at the end of the rehab project.

[Steve Wilcox]

It is very common to spend 100K on a rehab in Newark because often there is TONS of maintenance, and things like water damage can lead to major structural and framing issues that need to be addressed, original wiring (which is often unsafe), galvanized plumbing pipes, old windows, heat systems, ect. These are items that need to be done and cost relatively the same as in more high end areas. Just because you are in a lower income area does not mean you can have heat that doesn't work, plumbing that always clogged and has no water pressure, unsafe electricity, leaky roofs, ect. 

One of the challenges that keeps many boarded up properties that way, is that the cost of work required would be prohibitive because it might be more then an investor would be willing to be invested into the property.