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Updated about 9 years ago,

User Stats

25
Posts
8
Votes
Ian Loew
  • Real Estate Agent
  • Montclair, NJ
8
Votes |
25
Posts

BRRR Method being used for third 2 fam house

Ian Loew
  • Real Estate Agent
  • Montclair, NJ
Posted

My wife and I are in the process of purchasing our 3rd 2 family property. We currently live in our 1st which has been a huge success (house hack). We are nearing a year on our 2nd. Made several costly mistakes but was a tremendous learning experience. Now we are out of attorney review on our 3rd. We have decided to go with traditional financing, 25% down @ 4.65% on a 30 year fixed. Our intention is to BRRR: buy, renovate, rent and possibly refinance.

Unlike our two other properties this house is situated in a less than desirable area. However our real estate mentor who has over 30+ years of experience in our marketplace thinks it is a sure bet. My guess in 10 years it will gentrify, he is more optimistic.

Technically there are 2 units and 3 floors but a few oddities:

  • 1st & 3rd floor are on the same electrical panel
  • 3rd floor was rented as a boarder apartment (full bath but no kitchen / currently no tenants)

Cons include:

  • major electrical work (federal pacific boxes need to be replace / upgrade from 60 to 200 amp service)
  • water heaters are at the end of their life expectancy (2002 / 2004 respectively)
  • Unit 1 floors need to be refinished
  • Unit 1 kitchen needs all new items

Pros:

  • 2 blocks away from NYC mid-town direct (40 min into NYC by train)
  • 1st floor is currently rented to a great section 8 tenant ($1,269 month total rent)

Specs

  • purchase price: $232,000 / $174,000 loan
  • closing costs: approximately $12,000
  • 7 total beds
  • 3 full baths
  • total 2,136 sq ft
  • built in 1917
  • last sold in 2003 for $87,000

Monthly Expenses:

  • insurance: $125
  • landscaping: $100
  • property management: ? (currently will be me)
  • sewer: $40
  • taxes: $729 ($8,750 yearly: crazy high taxes but common for Essex County)
  • water: $70

We are thinking that the 2nd & 3rd floor / Unit 2 could rent for conservatively $1,750 a month (4 bedrooms / 2 full baths). Since it is in a downtrodden area of town we might try to rent to another section 8 family.

We've obtained a home equity line of credit against our current home (2%+ prime) and budgeted up to $25,000 for necessary upgrades like the electrical, kitchen appliances.

Without paying for a management company but figuring in 10% of annual income for captal expenditures ($293 monthly) our monthly cashflow is approximately $350.

I would like to aim for $200 per unit thus my hesitation. 

My wife and I both feel that we are currently in a real estate bubble that will burst within the next 1-2 years. However prices didn't fall that drastically after the last crash in northern NJ. 

Does it make sense to hold onto our $60,000 in cash (current down payment) and wait for a better opportunity?

We've put some much effort into this deal thus far it is difficult to see objectively at this point.

Any feedback would be greatly appreciated, thanks BP community!

- Ian