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?