BRRRR in a C minus Area

[Patrick Tiedeken]

I live in New Jersey and am a new investor (getting into wholesaling to generate cash and then doing a buy and hold strategy). I am considering investing in an area that is a C minus (that is my estimate of the grading) - Clementon NJ. I am looking for thoughts from experienced investors (based on my thoughts below).

I drove by the property - the units look well enough taken care of. The area isn't awful but is known for some crime and drug activity, and is a lower income working class neighborhood. It isn't a "war zone", but there is crime and the schools aren't well regarded. The population is holding steady over the past 10 years - no growth but no contraction.

Current landlord:

-Bought the property for $40K in 2016 and it and others around it have significantly appreciated since

-Claims he is selling because he is moving and getting older

-Property is occupied on a month to month and he claims they would consider a long-term lease. Has tenants in the property who he claims are "great" and "always pay on time"

Note: I have not yet toured the property or asked for proof of on time payment from the current tenants 

My analysis on the deal is this:

Target purchase price: $105K (current investor is asking 125K which is too high based on comps)

Current monthly rent: $1,450

Expenses: which includes mortgage, taxes, HOA, and 5% for repairs, 5% vacancy, 5% capex (HOA does cover outside)

Monthly return: $324/month

[Eric James]

Originally posted by @Patrick Tiedeken:

@Eric James what do you think about the numbers without a refi cash out? Worth it given the strong cash flow potential? 

You already accounted for insurance too, right? $325 cash flow per month would be acceptable to me. But I only BRRR and want to pull all my cash back out. If you don't mind not being able to pull your cash back out that would be ok then. Is it necessary to rehab the $10k if you don't refi?

Only thing I'll add is, I'd only want to be investing in a C- area if I was self managing. Too many turnover costs to have a PM.