Deal Analysis - Gloucester City NJ (again!)

[Joe P.]

I originally posted this a couple of weeks ago with some updated numbers. My initial cash-on-cash seems low, but I can't tell if I have too many dollars allocated towards property management (I'll be managing it myself), CAPEX, maintenance, and vacancy. I am leaning a certain way on the deal and I'm curious to see if other investors align with me or not.

Sales Price: 102,900, 25% down (assuming 5.625% interest rate on 30 year fixed)

C Unit in C Neighborhood, increases in quality could improve rent by $100-$200 p/m, estimated.

Income:

• 2 units, total rent is $1750 per month / $21000 per year

Expenses:

• PITI: $856 per month (444 mortgage, 67 insurance, 345 taxes)
• PM: 10% / $175 per month (I will be managing for the foreseeable future)
• CapEx: 10% / $175 per month
• Maintenance: 8% / $140 per month
• Vacancy: 8% / $140 per month
• Water: Average is $129 per month
• Flood Insurance: (Damn AE zone) is $57 per month (backed by private insurance)
• All other expenses covered by tenants

The numbers

• Cash Flow Per Door of $39 per month / $468 per year
• CF of $78 per month / $936 per year
• COCR of 3.03%

Value Add/My Questions:

• Rents are low for this area -- rentometer, Craigslist, and 2 BR comps indicate 2 bedrooms should be in the 1000 to 1100 range per month. So even raising rent with some sweat equity to say, 925 a month, brings total rents to 1850 and the COCR to 5.5%
• My estimate, perhaps foolhardy, is that PM expenses go back into the cash flow since I am self managing.
  • COCR becomes 12.71% and cash flow goes to $3,924 per year.

For those kind enough to review, I cannot tell if my underwriting on CAPEX, maintenance, vacancy, and property management is too conservative? Is the initial COCR without any value add too LOW to make this worth it?

[Mike B.]

@Joe P. - I wouldnt include it, or if you do, at a much lower rate then the norm.  I do my own PM on my properties; would like to note though that they are fully rehabbed, all systems updated, so I know I have little capEx and I thoroughly screen tenants so thankfully haven't had any issues.  Meaning I have very little PM responsibilities since I don't get phoned for repairs, etc.  To me, it's all about the time invested/spent at the property once it's rented out.  In the last 18 months, I've only been at my rental 10 hours at most (shovel snow, stop in to check on things).  

Hope this helps; to me.. i would do the deal you described.