Weequahic neighborhood Newark NJ property analysis

[Lior Solomon]

Hi everyone,

I need your feedback on this property I've found. please bear in mind that:

a. I'm a new investor looking for my first deal.

b. I'm not that familiar with Newark and I need some location feedback as well.

From a quick research I ran it seems that Weequahic neighborhood is an up and coming neighborhood. the safer part of it is between Bergen street and Weequahic park. The property I'm looking at is in the corner of Bergen street and Mapes Ave. Any objections so far?

As for the property analysis:

2 unit, 2500 sq

Purchase price: $179K

Rent roll $34,200

Gross income $31,350

Total expenses $11,920

Net operation income $19,430

Net after mortgage $7,743

Cap rate 9.91%

Cash on Cash 17.44%

I'm going to put a down payment of $44K for the mortgage.

It's a turnkey project, the house is going to be purchased after the house is fully renovated and populated with tenants.

I'm paying 10% for management(same guy that renovates the place will do the PM)

It sounds like something modest to start with, there is a big hospital next by and a police station in the end of the street. it's also a 11 min drive from the Rutgers University.

What's concerns me right now is how do I protect myself from a case where the guy that sells me this turnkey project for some reason can't accomplish the renovation and we already settled for the property price after renovation? I guess only paying the full amount after completion of renovation will do the job, right?

Thanks in advance,

Lior

[Ibrahim Hughes]

Here's the deal with Weequahic. Most of the streets between Bergen and the Park (Elizabeth Ave.) are good. However with many of those streets the closer you get to Bergen the more unstable you get as Bergen Street is a bit shaky with some of the characters. All of weequahic is pretty hot right now but anything near Bergen is a bit shaky. I would park on the corner around 2pm on a Sat. and see what you're working with. The best part of weequahic is anything North of the park and West of Lyons Ave. This is the area closest to Hillside.

Regarding the property is this an existing house or a 'newer construction' (built post 2000) 2 family? Those numbers are good if the latter. HOWEVER if not, and you're buying an existing 2 family then your 2500 feet means (I'm making an educated guess) that your property does NOT have a driveway or garage. I'm looking at comps and see that there have been NO 2 family in the last 6 months that does NOT have a drive way or garage that has sold in weequahic AT ALL. NADA. The highest existing 2 family WITH parking sold for $153k. Only newer/new construction, which comes with 2500 sq ft of lot, still comes with any parking at all - and that's for 2 cars. The issue is that those existing 2 families with no parking are hard sells. ESPECIALLY in the South Ward. They have almost no retail resell value and usually only appeal to buy and hold investors at a really low price. So be careful.

Which brings me to my next point and @Erik Pedersen post. I was one of those 5 Investors that capped the fmv of his deal at $55k. Congrats man. However, I still stick to my opinion on valuation and say that if 1 out of 6 investors jumped up $20k in price and down a good amount in repairs then I have to wonder how experienced was he really with Newark and investing in general. But hey the bottom line is that you sold it. And in every market there are some buyers willing to pay a lot more than conventional wisdom. In fact there's a hot market going on right now where 3 families in the south ward of Newark (the worst part with the most crime) are selling to 1st time buyers for $300k+. Unbelievable and pre 2007 Bubble burst all over again. In fact as I was looking at comps for the OP, I saw for the 1st time, a 2 family that fit into the same pattern. I know because the common thread with all of these deals is that the buyer and seller are repped by the same Realtor (my thoughts is that a buyer's realtor who is separate from the seller's Realtor would likely advise his/her client from paying such a high price). So keep it going Erik. I just wouldn't base my business model on that 1 buyer paying more than the rest of the market. Or maybe the rest of the market needs to catch up to that one buyer. That is, I guess, how markets move upwards (unfortunately, towards over inflation {of values} possibly). Either way our job is to ride the wave no matter when or how hard it breaks. Then wait for the right time, swim back out there and ride the next one.