Newbie in Philadelphia

[Alex M.]

Newbie in Philly

Hey bigger pockets. I found this site a few days ago, and am really excited to be on here. I'm completely new to investing, but have wanted to get into RE for some time now. I've been scouting out opportunities on realtor.com for a small MF property, and have recently had an offer accepted on a five unit row home in a transitional neighborhood in close proximity to the city center. I'm using fha 203k financing for the project, and shrinking it down to a four unit to comply with finance requirements. I'm still in the middle of my inspection window, and excited about the property, but unsure of whether it is a great investment given the potential costs for improvement. Since finding this site, I've created some spreadsheets and learned about cap rates, cash on cash returns and more. The basics for this deal look to be ok. Cash on cash of 50% cap rate of 7.75... And there is the potential to add a fifth unit down the road - including the space for it. But all of this changes dramatically if then costs increase by even 10-20k. What I wish I really had a better handle on was what the potential for cost overruns is, and how to manage this risk. I'm looking forward to learning more as I read through BiggerPockets. It's great to find such a knowledgable community of investors.