Newark, NJ Deal Analysis (low income Area)

[Sant S.]

Just saw a 12 unit property yesterday in Newark, NJ about an hour outside of NYC via bus & train. The area is a low income area, a little on the rough side. This is my first time considering a property in a low income area, so upon viewing the property I really felt like an outsider. As a matter of fact right when I pulled up to the property I was stared down by all walker-by's and locals. After meeting the property manager/owner I felt slightly more comfortable in the surroundings as he also looked like an outsider. He has been managing the property for 6 yrs (I confirmed this by looking at the public tax records). While showing me the property he collected some rent checks. There is a mix of tenants in the 12 units. (White, Black, & Spanish) No section 8. If I were to move forward with this property I would probably hire a property manager.

See income/expense numbers below.

Purchase price:
595k

Income:
119K

Expenses:
Tax: 9800
W/S: 3600
Electric/Gas: 400
Gas Heat: 4k
Insurance: 4500
Maintenance: 6k
Total: 30k roughly

Net before Debt: 84k

Debt Service: 30k

Cash flow 54k

Can anyone give me their feedback purchasing and managing properties in low income areas? My goal would be to lock in a 20 yr fixed loan and hold the property till the debt is paid off.

[Ankit Duggal]

Sant Sobhraj

It really depends where in Newark you are buying as that is unique market in its own right.

Just a couple points of concern:
Expenses are only 25% of gross income. That ratio feels low.
Key question to ask would be how many times have you had to file notice of eviction to get paid?
If none is section 8 then how long have the tenants been living there and what is the property manager underwriting process.

Ankit