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Updated about 6 years ago on . Most recent reply
Risky and complicated first deal in Newark, NJ – should I do it?
Risky and complicated for a first deal – should I do it?
Hi BP community. I am writing with my first post, and I am writing at a time when I sense all of the hard work put in is about to lead to my first deal, on this one or another in the near future. Below I have detailed the deal, my financing strategy, and my three questions. Any and all insight, feedback, and advice is welcome.
Potential deal
I am looking at an off market turnkey property in Newark near West Side Park. The property was fully rehabbed by an investor and the details are as follows:
- Tenants were recently placed in the three units on one-year leases with rent totally $3,950.
- With a 30 year mortgage, 20% down, I would be looking at 70k down payment, 10k in closing costs, and payments of $2,100 with mortgage, taxes and insurance (I can't house hack it).
- I budgeted for 8% for vacancy, 5% for repairs (lower end because just rehabbed), 10% for property management, $1500 per year for water, and $1,200 per year to set aside for CAP ex.
- With those numbers, which I think are on the conservative side with new leases with tenants that were carefully screened and a rehabbed property, cash flow comes to approximately $700 a month.
Financing Strategy
I am from Newark/Hillside area, so I know this property is not located in the best area of Newark, but I think the numbers are good, and having a good property manager would help. If this is a solid deal, than the question is how do I get the money when I don’t have 70k plus closing costs. BP podcasts with @Joshua Dorkin and @Brandon Turnerand, especially, @Matt Faircloth’s great book, Raising Private Capital, have really helped me to think creatively. Here is my strategy:
- Raise 70-80k from family members through their the use of a Self-Directed IRA and their retirement funds. (I know this process can take 30-45 days but I may be able to get the time with the investor)
- I can offer a 10% return on their investment with a 5-7 year hold period (after annual custodian fee – would technically be 9% on 30k investment), which would allow me to build my equity to 40% and cash them out with their 20% initial investment. The family members with whom I am speaking are in their 40’s and don’t pay attention to their retirement funds, like most people, so they are willing to get a higher return and just have me do the work.
- A 10% return on an 80k investment would come to $667 per month, which would be nearly my entire cash flow. That’s the risk. The upside is they get a higher return than they would in the market, and I would get my first property and benefit from depreciation, appreciation, and the equity build up, plus increasing rents over time.
- I don’t have much cash, but if any emergencies arise, I can take a loan from my retirement fund. Also, I would put aside every dollar that is not used for vacancy or repairs, plus the capex money.
Questions:
- 1.Are my budgeted numbers solid and is this a good deal?
- 2.Is the strategy to finance the property fair on all sides and worth the risk for the upside?
- 3.Should I raise the funds as an unsecured line (loan) from family members with a promissory note or as a loan backed with a proportional percentage of the mortgage?
Most Popular Reply

Hi @Jason G.! We own and provide property management services to several 3 family homes in Newark, Essex County and this is my take on your deal. To begin, are these 3 bedroom, 1 bath apartments? How much is this property selling for?
- Tenants: If this is a rehabbed property and it's renting at around $1,300, I'm going to assume they are 2 bedroom apartments, if they are 3's you may be able to increase rents a bit.
- Rent control: In Newark 3 families and above that are not owner occupied are rent control apartments, if you move forward request an OPRA request and find out if rents are registered and if you are allow to charge the $1,300 they are charging, many newer investors never look into this.
- Budget: Your budgets seem fair, I would consider a little higher for management fees as 10% is the standard rate, but management also has lease up fees yearly, and onboarding costs, along with some additional things that come up, I would safely say 10-12% to truly estimate the cost of management. Managing properties in Newark can be challenging specially in certain areas.
- Vacancies: They are normally not a huge issue in Northern NJ, if the price of your rental is right.
- Screening Tenants: Don't ever count on a flipper to carefully screen tenants, we have had to evict tenants from newly rehabbed properties many times (Not to scare you) but is good to go into these deals with a clear expectation. I don't want to down talk flippers in this field or areas, but unfortunately in some cases, they are looking to fill the apartments so they look attractive to an investor, also many times this is not their expertise, so they may not do a great job at it.
- Water/Sewer: Regarding to your water/sewer expense, we own and provide property management services to many 3 families in Newark and our monthly water/sewer expense roams around $120-150 monthly, which brings the annual expense to $1,500 on the lower end. @Satha Palani (Any other Newark investor feel free to chime in)...
Best of Luck!
Moises