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Updated over 7 years ago,
New Investor - Rental Deal Analysis Help
Hi all, my name is Joe DiNardi I am 23 years old and a fairly new investor from New Jersey. My parents own some rental properties in central Jersey which lead me to become interested in this industry. I am looking to build wealth through long term buy and hold rentals, but also plan on doing some flips when the opportunities arise in order to increase my capital. I also have my real estate license, which I got for my real estate investing.
Currently I am looking at a triplex in New Brunswick, which would be rented out to students. As a former Rutgers graduate I know the area very well and also how to deal with student tenants. The property is located close to campus and is within the area where students not only rent but feel comfortable living. It is listed for $1,350,000 and last sold in 2005 for $932,500. I believe that the property is over priced and should be valued between $1,000,000 to $1,150,000 based on comps and talking with other agents in the area, I would place an offer no higher than $1,200,000 however, based on the following numbers. Each unit is already rented out for next year for $3,600 a month, which would make the gross revenue $10,800 a month. After accounting for vacancies (5% of monthly income), repairs (7% of monthly income), taxes of about $20,000 a year, an insurance quote of $4,400 a year, LLC costs and Cap Ex expense of $3,000 a year, and a mortgage of about $58,000 a year @ 4.5% 30 year fixed. I would be putting down 20% or $240,000 which I got as a family loan with no interest and estimating about $15,000 in closing costs and misc small expenses. The home needs a few little things fixed up before it is rentable but I am planning to have the seller make the needed repairs or give the cash equivalent because of the asking price of the home. There was another offer of $1,150,00 all cash that the seller rejected so that is why I believe I can offer no lower than $1,200,000.
At these numbers I calculated a cash on cash return of 10.5% and a cap rate of 7.25%, which is on the higher end for this market. Do you think it is worth paying the extra $50,000 to get this cash flow? Also does it appear that I am missing anything or making any mistakes? Any advice for either buy or avoid would be greatly appreciated and I am looking forward to hearing your feedback and getting to know the BP community.
Thank you all again for your time!