New Jersey Deal Analysis

[Geet Doshi]

Hi Everyone,

I have been on the search for a great multi-family house in Northern New Jersey. I found a deal which (I think) is good if not great. This is my first time writing and analyzing a deal fully so please let me know if I am missing anything or there is anything I can change.

I am looking to get an FHA/203K loan and put 3.5% down on a multi-family home. So I will live in one unit and rent out the 2nd (3rd and 4th depending on how many units the multi family home has) unit.

First off, lets say I have been approved for a 203K loan for $320,000. The original home price is $300,000. This particular unit is a 4 unit multi family home, so I would live in one of the units and rent out the other 3. Each unit has 2 bd 1 ba. The average monthly rent in the area for a 1bd 1 ba is $1100/month. The monthly mortgage (including property taxes, fees, MIP, etc.) is $2,500/month.

So,  3.5% down of the $320,000 loan --> $11,200 as a down payment.

Unit 1 - Owner Occupied (I would be living in it for 2 years) - $0

Unit 2 - Rent - $1100

Unit 3 - Rent - $1100

Unit 4 - Rent - $1100

This leaves me with $3,300/month, while the mortgage is $2,500/month giving me positive cash flow for $800/month.

This is what I have come up with...anything big I am missing? anything I may have done wrong? any comments/advice?! 

Thank you all for reading!

Best,

Geet Doshi

[Corey W.]

Hi Geet,

What are the remaining bills that you will be paying each month for the property and what do the tenants pay for? Ex; taxes, water, sewer, garbage, HOA fees(if applicable), insurance, is it in a flood zone, is gas separate, is electric separate?

Also be sure to remember you will need more than the 3.5% down for FHA loans, your closing costs will be a lot higher than a conventional loan due to extra escrows needed upfront. Assume 5% closing costs for FHA with 3.5% down. So if the property is $300,000, you'll need an additional $15,000. Bringing the total amount upfront needed to $26,200. Plus you'll want to have a few months expenses on hand for any issues that may arise or repairs needed.

As well your monthly mortgage may differ than $2,500. Due to interest rate, property price, PMI, etc. For every property you find, I suggest you do a detailed analysis of all bills, costs, and income. That way it can lay out COC, cash flow, cap rates. I suggest you do this for 50-100 properties in the area if you haven't done so already. After doing this you'll be able to spot a better deal and make an informed decision with as many details as possible.