1st Property - Do the #s Work? Quadplex in Northern NJ

[Sunny Burns]

I am a first time home buyer as well as a newbie Buy and Hold REI, so trying to get as much feedback from experienced investors as I can before moving forward. My goal for my first property is to achieve $1000 cashflow a month.

Background on Property

It is a 4 family property North New Jersey built in 1970, 3 single bedrooms, and one 2 bedroom. A tree fell on it in 2013 and it was insured so the owners redid the roof and fixed everything up. So the exterior is all newly renovated. The whole house is electric, electric hot water heaters, baseboard heating, etc. All separately metered. 

The rooms are smaller but the layouts of the rooms are great and are in excellent condition. The appliances could use a little updating but look good and work, really needs nothing. It is on a nice quiet residential street; there is a shoprite only a block away and a train station two blocks away. It is fully occupied, with long term tenants. The shortest being there 3 years and the longest being there 15 years. 3 of the units have single person tenants and the 4th has a couple in it. Each unit has 2 parking spaces and there is a coin operated washer dryer in the bottom hall.

Price: $360,000

Income

• Rent: $1050 + $1000 + $950 + $900 = $3900/month 
• Coin Operated Laundry Dryer = $100/month

Total Income = $4000/month = $48000/year

w/ 5% Vacancy = $45600/yr

Expenses

Info From the Owner

• Taxes: $10,000/yr
• Water&sewage: $3,000/yr
• House electricity bill: $50/month = $600/yr
• 5 separate meters: all tenants pay own electricity & electric baseboard heat

Assumptions(This I would like help on)

• Snow removal & lawn care: They had a family friend do it ... so no idea = $2000/yr??
• Maintenance & Repair = $2500/yr??
• Insurance - $2000/yr??

Total Expenses = $20,100/yr

Operating Income & Financing

Total Operating Income = $25,500/yr

My plan is to put 20% and go Conventional 30 year Mortgage. I've spoken with a 3.885% rate. I would be owner occupying but I am not calculating for that, since I don't plan to stay in the property too long, and am more looking at future cashflows.

So with $3000 in Closing costs & 20% down, it would require cash outlay of $75,000. 

Mortgage would be $1356/month, $16,272/yr.

Annual Cash Flow: $9,229

Cash ROI: 12.31%

Total ROI: 19.20%

How does it look?

[Andrew Davis]

Hey @Sunny Burns ,

A really simple way to calculate cash flow is using the 50% rule.  Simply stated: 50% of gross rental income will go towards expenses, not including debt service.  So, if your monthly rental income is $4,000, you can budget that $2,000 will go towards expenses: property taxes, insurance, maintenance, vacancies and management.  While you will be self-managing initially, you may (probably will) find that you don't want to manage the property long term.  

Since you'll be occupying one of the units, this assumes that you will be paying yourself rent.

So, from the $2,000 you subtract your debt service of $1356 a month and you get a monthly cash flow of around $650.  $7800 a year.

With $75,000 into it, that's a cash on cash return of 10.4%, not bad at all!