Duplex deal metrics!

[Matt Lopez]

Hey guys! So im currently about to close on my first ever deal for a owner occupied FHA duplex. Both units are two bed two bath, the bottom unit being the one me and my gf will occupy is brand new everything.. with a half finished basement which is an additional 1,400 sq ft. Each unit is around 1,200 sq ft top unit needs updating but comes with a beautiful deck and it sits on an acre lot. Big yard. which is costing me roughly 96$ per sq ft. Fha report clarified what I anticipated, when i move out both units leased would net roughly 2,500-2,600. My mortgage will be roughy1,900 (going w ho5 home owners) fha report states after considering the rental market in south New Jersey that the effective gross income is roughly 29,070 after operating expenses it could produce a income of 20-25k annually.

SO sounds great right? Hold on here comes the bs.

2 MAJOR CONCERNS (as a new rs investor)

1- after an inspection the basement seems to have a small piece of sheet rock dividing the basement with mold. Inspection report tests prove it is in fact black mold but bc its in the corner and the connecting wall is finished we cant see if its spread.

2. Im acquiring a tenant who’s spent three years in the top unit.. she has 10 cats one dog and feeds and shelters feral cats outback. I intend to bump her rent slightly from 1100 to 1200 to compensate for pets. Nj state law states her pets are grandfathered in and I can’t as a new owner demand her remove pets to meet township code which is 4 pets per unit. I myself have two dogs, both hounds. In the contract it states the removal of all feral cat house structures in the backyard however the seller has requested i contract the tenant because its her property. I stood my ground and reminded them this is a contingency of the contract and technically she is not my tenant until i serve a notice to quit, notice of rent increase and a new lease agreement detailing new rules which will

Detail the property will no longer serve as a feral cat sanctuary.

MY QUESTION BiggerPockets... am i biting more than i can chew???

Any input is appreciated!

[Evan Polaski]

@Matt Lopez, no one can answer if you are biting off more than you can chew.  To me personally, mold in a basement with a known and easily fixed water source is no big deal, assuming it is surface and has not been spreading inside walls for years.

Feral cats: sounds like you have a plan, so sort of a non-issue.  Of course, you have to know what you are allowed to do and not allowed to do under NJ laws.  If she has cats, and they are indoor/outdoor cats, can you limit her ability to feed her cats outside?  If not, she can claim she is feeding her cats and can't help that feral cats are coming around.  But also, sounds like if you just let your dogs our for long periods of time, assuming they will chase the cats, you have a built in remedy anyways.

On to Tim's comments: the roof is 1-2 years old now, but in 20ish years will need replaced again.  It sounds like you have the HVAC systems covered, but again, in another 15 years you will be out another 10k or more.  Water heaters, age and style of kitchens and baths.  Exterior fences, decks, paint, retaining walls, concrete work, landscaping upgrades, it all needs handled at some point.  Now in my older and more conservative days, I reserve every month for all of it, so I am never "out of pocket".  This means I am reserving about $400/month per property to cover those items in 5-20 years as they come up.  Some of my budget will hopefully be optional, but if I want to continue getting top of market rents over the long term, kitchens and baths need upgraded about every 15 years as styles change, and other things that are new today, wear out, and often times faster than you would want.