First Duplex Investment Property Purchase Input/Advice

[Matt Medes]

Hey BP Investors!

I am new to investing in real estate and just purchased my first duplex (1/1 top & bottom). We purchased the property off-market (yes we got lucky lol) and I just wanted some input/advice in regards to a few things.

The property is located in southern New Jersey so clearly following NJ state laws is a must.

Purchase Price: $175,000 (20% down, 4.5% with 2 points)

** Took out a HELOC on our primary residence (new construction) and used that for down payment/closing costs. **

Annual Taxes: $3,400

Current Rents: First Floor - $772 (lease ends 8/2021), Second Floor $950 (lease ends 1/2022)

Current Landlord pays: Gas, Water, Sewer

From the information we have obtained:

Yearly Income: $20,664

Operating Expenses $8,400

Clearly the first floor tenant is underpaying drastically. The 2nd floor unit was renovated, but 1st floor unit needs updating. Tenant has been in there since 2017 without a raise in rent. Fair Market Value in the area for 1/1 is $1,200. I am looking to update the 1st floor as soon as the lease runs out and increase the rent. I am not sure if the tenant is on state aid, but the lease does end this summer so I shouldn't have any issues.  

Cash on Cash return right now is about 13% annually, but has potential to be between 30-35% come early 2022. 

Any input and advice is greatly appreciated!

Thanks!