South Jersey Multi-family - deal or no deal?

Question

Hello fellow BPers!

I currently live in Pennsauken, NJ and have been looking for multi-family homes to purchase as my first investment property. I am new to RE investing and would really love if you could give me some feedback from you as I am currently on the fence of pulling the trigger.

Potential property:

Duplex

Purchase price: $225K, I would probably need to put in approx. $3000-5000 worth of work to make it rent-ready.

Rents per unit: ~1300

Taxes: ~9500 (Camden county, yikes)

From a cashflow perspective, I think it’s minimal. But property is in a great location and probably relatively good quality tenants too.

I think I am ready to pull the trigger, but at the same time, with minimal returns, I can’t help but ask myself, why not just invest in the stock market?!

What do you think?

Mark Langdon · Answer

Create your spreadsheet to properly analyze it.Your going to need it for this and every deal moving forward. Make sure you have it all included. Inspections; closing costs, loan costs; Mortgage Payment; Repair allowance; Vacancy allowance; Property taxes (Seem very high); Maintenance allowance; Utilities; Property Insurance; Property Management fee if any etc. Then add it all up and do a simple cash flow (hopefully positive; not sure though); ROI; and Cash on Cash return. Once you have your spreadsheet you can quickly analyze the deals and see if it works for you and compare to other deals you may be looking at. Best of Luck !

Christopher Giannino · Answer

Hi Yvette,

As the others have said, there is more information needed to fully analyze this deal.  From the sound of it though, it doesn't seem like it will cash flow too well.  Part of the reason is because the taxes are eating into your cash fIow.

One metric I like to use is the payback period formula.  Basically, it tells you how many years it would take to recoup your initial investment.

Initial Investment / Cash Flow per year = years of payback

I'll use an example below..

Your initial investment is the downpayment and lets assume this investment gives you about a $100 in cash flow per month

Downpayment on $225,000 (assuming 20% down) = $45,000

Cash flow of $100 per month * 12 = $1,200

45,000 / 1,200 = 37.5 years for payback

Anthony Dooley · Answer

@Yvette Chung I would double check the repair estimates. It may be double that. It's not the best deal of the year, but it isn't terrible.  Taxes are ridiculous and as NJ raises your taxes, you will have to raise the rent on your tenants to keep up. If you buy it, you will get an education in RE that you can't get from reading a book or this website.  We all learn from our mistakes, so if you never have the courage to make a mistake, you will never learn.

Gennadiy Matusevich · Answer

hi Yvette @Yvette Chung- Did quick math in my spreadsheet, based on below assumptions, looks like you would be cash flow positive.

Happy to hear any feedback people may have on below assumptions, too conservative/aggresive?

Rent

2,500

Price of house

175,000

Down Payment (%)

0.00%

Rate

4.50%

Taxes

6,500

Insurance

1,500

Mortgage

($887)

Taxes

($542)

Insurance

($125)

Repairs (5%)

($125)

CAPEX (10%)

($250)

Mgr (8%)

($200)

Vacancy(10%)

($250)

Total Out of Pocket

($2,378)

Monthly Cash Flow

$122

Yvette Chung · Answer

@Anthony Dooley - Thanks! Yeah unfortunately NJ is notorious for having high property taxes and actually this one doesn't seem all that bad. I know there are areas that have 10k+ in taxes especially for multi family.

@Richard S. - I did do some research on  rental prices in the area and believe those rents are realistic and attainable. Thanks for pointing that out!

Richard S. · Answer

Those taxes are normal for SJ and a duplex, at those rents the building sounds relatively nice. I think the numbers make sense if those rents are attainable if your tenants move. If they're getting government assistance though, be happy that's guaranteed income!

Anthony Dooley · Answer

Those numbers are not bad. Taxes really put a damper on your bottom line compared to what I'm used to seeing.

Yvette Chung · Answer

Hello @Lauren C. @Joseph Scorese @Anthony Dooley @Christopher Giannino  @Mark Langdon @Richard S.

Thank you all for your comments!!! Based on advice from you guys and some additional calculations, i have finally decided to not move forward with this place. I am so thankful for this forum and community, as I could have potentially made a bad investment decision.

I have, however, located another potential property that I am likely going to move forward on. I think the numbers check out, but i am a first timer and really do not trust myself at this point. So i would really love to hear what you think

New Potential Property

Duplex

Purchase Price: 175K

Rents per month: $2500 Total

RE Taxes : $6500 (08109)

No improvements needed at this point.

i will be putting 20% down and my monthly mortgage/Taxes/insurance payment should be around $1400 or less.

The only caveat is that there are currently tenants in it and i just found out today that they are section 8 tenants. I have met them in person and they appear to be nice people and for the most part, took care of the apartments well. But I am not sure what kind of complications it adds to this.

If you could share your thoughts on this, i'd very much appreciate it. Thanks!!!

W. Alex Benitez · Answer

@Yvette Chung  I did not see it mentioned in the thread but also take into consideration monthly operational expenses.  They should also be included in your overall monthly analysis (Mortgage, Taxes, Operational expense, vacancy rate, etc..)

Joseph Scorese · Answer

Hi @Yvette Chung,

Welcome to BP!

Looking at Multi Family is good for the first property if you are seeking long term Landlording.

The question is will it cashflow with you living there and then better when you move out after the one year requirement. Also, is this a desirable neighborhood for schools and appreciating. The real estate market dollar for dollar has always done better than the stock market on 5 or 10 Year Cycles.

Let me know if there are any questions.

Regards,

Joe Scorese

South Jersey Multi-family - deal or no deal?

Most Popular Reply