First rental property in New Hamphire, do these numbers seem good?

Question

Hi everyone, I am under contract on a three family in Manchester, NH, I feel pretty good about the numbers but would like some reassurance that I'm not underestimating and its a deal worth going through on. My home inspection is tomorrow so I am getting nervous.

2 units are currently rented, one 3 bedroom at $1200 a month, and a 2 bedroom at $650 a month, we plan to owner occupy the 2 bedroom rented for $650 which is under market, it should rent for $800, once the lease expires we will give them notice and take over the unit. There is one vacant 3 bedroom that should also rent for $1200. I am analyzing this as if it was fully rented at market value. The building also has a coin op washer and dryer, I am not including this as I am not sure how much money they will generate.

total rent $3200

purchase price $232,260 ($237,000 with 2% seller paid closing costs)

mortgage: $1,100 ( we are doing 10% down with FHA, this is including the PMI)

taxes $389

insurance $127

landlord paid utilies ( water/sewer and house electric meter for common areas): $80

maintenance/capex: $500

vacancy: 8% $256

Cash Flow montly: $748

From what I have read most people on here are aiming for $200 a month per door this exceeds this requirement

Cap rate 9.56

Cash on Cash return ($8,976/$23,700): 37%

This seems like a solid investment to me, its an older building, built in 1910 which is common for the area, but the basement and structure seems to be in good shape. Newer vinyl siding, windows, units are updated and in good condition. I will probably invest $1000 to improving the current area for coin op laundry to tenants use the area as opposed to going to the laundromat, and it could probably use a roof with in the next 5 years which worries me.

Once we owner occupy we will be doing snow removal/lawn care ourselves which will help reduce costs further.

What does everyone think? Do these seem like realistic numbers or am I underestimating costs?

Kevin Kovalsky · Answer

Hi Annie,

Congrats on taking action getting this one under contract.  I have a few observations regarding your numbers.

• Full disclosure:  I own three rentals in Manchester but never owner occupied before

You are calculating your ROI based on all units being rented.  However, you will be occupying one of units.  I think this is giving you a false ROI.  I would try running the numbers again with only including income for two units.  You still might cover your expenses and then some but your ROI will be much lower.  How long do you intend on living at this property?

• I’ve never been through this particular situation before (give notice for expiring lease), but any “eviction” is not always as easy (or done quickly) as it appears.  I don’t know if you already has conversations with the tenant.  Here are some links regarding the NH eviction process

• http://www.landlordguidance.com/eviction-notice-forms/new-hampshire-eviction/
• http://doj.nh.gov/consumer/sourcebook/renting.htm
• http://www.nhlegalaid.org/self-help-guides/housing-foreclosure/evictions/questionanswer-walk-through-eviction-process

http://www.courts.state.nh.us/district/landlord.htm

• It appears, since you will be owner occupying, that you will be the property manager.  Regardless, I still enter a PM fee in my numbers to take into consideration a possible PM in the future
• Your taxes, insurance, and vacancy numbers look right on.  However, my last quarterly sewer and water bill was closer to $500.  Note: I have a big 3 family with big families in each unit

Good Luck!

Chad Jarrah · Answer

I think that's a great first rental. I hope you get good rents, good tenants and great value over time. Hopefully the first on many for you guys.

Treat your tenants good and let them know you'll be landlords that will keep them happy. I offer $100 rent discount for the December rent (around Christmas) to all of my tenants that pay on time and keep the place in good shape. It's a nice gesture that more than pays for itself. Good luck!

Annie Gillespie · Answer

thanks so much for both of your responses. We only plan to owner occupy for 1-2 years and then continue to own it solely as an investment, that's why I am calculating as not being owner occupied.

It is the property on bell st, I was skeptical of the area when looking on google maps, but after driving the area I feel good about the location, it's the only older property on the street the rest are newer townhouse style duplexes, and some single families on the street behind us.

We just went through the inspection today and the property needs a roof before this winter, and has 3 layers of shingles on it, along with a couple other issues, but it is structurally sound and has newer electric/plumbing/furnaces/water heaters.

The owner has already moved to Florida and is trying to sell off his inventory so hopefully the price can come down a significant amount to cover the roof, otherwise we will probably walk away and continue to look.

Richard C. · Answer

Hi Annie,

Congratulations.

I think the numbers look pretty good.  As you likely know, Manchester can vary quite a bit from neighborhood to neighborhood and even block to block.  Is this the one on Bell?  My only concern there is Wilson School, which is frankly pretty dreadful.

Also, take careful note of what Kevin says about evictions.  One of the ways in which NH is pretty unique is that getting people out of a unit is not simply a matter of giving notice and waiting for the lease to expire.

Annie Gillespie · Answer

Yes, found it on the MLS, I looked at a few different properties, it seems like any good deals on duplexes and triplexes are going very fast right now.

Annie Gillespie · Answer

it's pretty close to market value, I'm factoring high on maintenance to account for having to do a roof in the next couple years.

And yes costs are monthly. We are getting 3.6% but have to pay PMI due to all FHA loans require PMI even with 20% down. I would prefer to put 10% down anyways to keep our reserves high to buy more properties.

Chad Jarrah · Answer

If I am assuming that everything you posted was a monthly cost, I think it looks like a good deal, plus you should be getting a better interest rate because of the owner occupancy (and the laundromat will bring something in as well). If like you say, the units are in good shape, I even think your monthly maintenance expenses are high (better to over-account though).

Is it priced at the market value or are you getting any instant equity in the purchase price?

First rental property in New Hamphire, do these numbers seem good?

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