An interesting opportunity just came my way and I am having trouble analyzing this deal and deciding if it is the best usage of my capital. Here is the scenario (I will try to make it as concise as possible):

A brand new construction high end condo complex went up for sale this past June in my community. I ended up buying a unit for myself, as I truly felt it was a great investment opportunity and more importantly was the perfect home for me at the time (I was looking for something low maintenance and move in ready, as I was working on many BRRRR/Flip projects at the time). Anyway, over the course of last few months, I have befriended the builder and he recently told me, the penthouse unit has fallen out of contract, it was pending for so long because beneath the unit are 2 commercial units and the town would not issue C/O for penthouse, while those were under construction. The buyer backed out and the builder called me to ask me my opinion on market rents for Airbnb/STR for summer season (this property is located at the Jersey Shore). During our discussion, I told him I would buy it, if he decided he didn't want it. Long story short, he called me and said he would sell it to me for $860,000. Full transparency, I feel $860,000 is what it was worth last year, so I feel this number is inflated, but I know he would rather hold the property and rent himself if he cannot get that number. After running numbers, here's what it looks like:

$860,000 Purchase Price, however the builder will hold $400k of paper (interest only) at 6.5% per year for 5 years. So essentially, I only need 20% down on the $460k portion of the loan, which I plan on funding through a local bank.

Mortgage/Taxes/Insurance/HOA Fee will be roughly $3900 per month on the $460k note

Mortgage on the $400k through builder will be $2,166.66 per month.

Capex will be a little lower than normal since A. It's brand new construction B. HOA covers all ext. maintenance roof, side etc. and landscape / snow, but I will adjust and say $60 monthly for CAPEX

Cleaning fees, W/S, Gas/Electric for the year will likely be around $3,800 for the year.

My all in costs for the year will likely be around $78,000

The estimated revenue from Airbnb/Short Term rentals will likely be around $144,000 per year. That accounts for peak summer season and off season rentals. This is in a highly desirable area.

My net looks to be somewhere around $40,000 low end to 66,000 high end per year.

My out of pocket will likely be $125,000 from the 20% down payment and then furnishing the rental.

If I use cash on cash calculations, the returns are absurd. What do you guys think of this deal? Does it make sense? Is it too risky? Hopefully if everyone has read this far, you will leave your feedback! Thank you so much :)

James

Jersey City, New Jersey

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