New Investor Please Vet My Plan!

[Brandon Mitchell]

Hi BP Community,

Before I dive into the details let me give you a brief background on myself as this will be my first time jumping into the real estate market. I've just been pre-approved for up to 600k to borrow to purchase my first property, I have until mid Feb. until my preapproval expires and I'm 22. I currently work at a Big Four accounting firm for all of you who know what that is and make a modest 80k salary. For my first deal, I'm essentially partnering with my older brother whose 28 and makes 100k, we're both going to be on the loan and splitting the down payment costs, repairs, etc. We're both from Long Island, NY but I currently commute to Philly M-Th for my job and will be doing that for next few months.

We've been thinking about getting into real estate for a while to build long term wealth over time and want to stop waiting and get started. My inspiration comes from my current landlord who bought his multi-family unit 2 floors, 2-3 bedrooms each, with a basement at 23 for 420k, FHA, and mid 3s for interest rate. He is 25 now and doesn't live in the house, it's fully rented, and he's now cash flow positive around $700-$900 per month, awesome guy.

So here's our plan. 

We want to buy a 3 story multi family in Newark, NJ where prices vary neighboorhood by neighboorhood depending on proximity to the trains, buses, schools, major highways, crime rate etc. We want to purchase between 330k - 420k, each floor having around 2-3 bedrooms and one bath, some even have 4 bdr one bath each floor. After using the lovely BP calculators, and scouring multiple sites for comp rents, zillow, mls, rentometer I've concluded the avg. rent for a 3 bdr 1 bath to be between $1400-$1550 depending on the neighboorhood which is decent. Because the neighboorhood is "coming back" most of the homes have been completely renovated in 2016 and up and we've already seen some that have been completely renovated (plumbing, electrical, floors, kitchen) for around 380k and that's where we want to be.

So after accounting for vacancy, cap, and repairs and maintenance percent of around 8-9% we would be looking at around $500-$700 in positive cash flow monthly, plus the $1,100 or so in equity every month give or take if fully rented (all 3 floors). We're planning to do the FHA-30yr, so 3.5% down payment would effectively be between 10-13k (my brother and I would split) and negotiate the seller to pay the closing costs. The local market is also facing a housing shortage and loads of people from NYC, other parts of NJ, and PA are moving to the area fast as its close to NYC ~ 25 mins by PATH train and a lot cheaper than the $2,000 and up rents in NYC. Taxes are also around 7-9k yearly depending on the zip code. Also want to note that these houses are coming with utilities separated from the start, except water.

We think the area will appreciate over the next 5-10 year substantially and will be holding on with the goal of eventually doing a cash out refinance to scale up the portfolio. Our target is to own 2 multiple family units by the end of 2019 starting with one soon if its the right deal. We're going to check out a few more properties this weekend (around 9) with our realtor and our close family friend whose an outstanding contractor.

That's the jist of our plan, tear it apart and please give me some feedback. I consider myself to be "educated" after listening to a few BP podcasts, having a business degree, and obsessing over researching but I'm sure there are things experienced folks may have to offer.