11 unit building - Union , NJ

[Markus L.]

Hi , I am new here and this is my first posting . Great forum !

I am considering the following investment
-11 unit building , mix of 1 and 3 BDRMs , fully occupied
-Price is $415K
-NOI 55K on 105K Gross
-Building is circa 1930s and requires TLC in all units. No Major structural issues though. I say this is class C- but still in a walking distance to the train station directly to Manhattan

Problems:
-no green card / Certificate of Occupancy due to violations . Nothing major but will require $20K to $30K of repairs to get the state certifications
-oil heated and will need to spend $5K to switch to gas and remove the oil tank

Based on the numbes , CAP is about 12%

Questions :
-I am considering buying all cash , fix the violations and get state Certificate of Occupancy and then get a loan / mortgage . would I be able to get a loan on such building ? What rates should I be expecting
-Would the fact that the building is older and not well maintained have impact on the loan ?
-Is the asking price reasonable ?
-Would I be better of with leveraging the $500K I have in a LTV of 80% and get a bigger/better building with lower NOI/CAP ?

Thanks in advance for the help ,

[Ibrahim Hughes]

Hi Markus and Welcome!

1. I agree with Joel. I rehab multis in NJ and the cost to bring 11 units up to code will likely be higher.

2. Have you examined the requirements under NJ's Multiple Dwelling and Hotel Act (the law that governs the issuance of a 'Green card' for residential properties of 3 units or more)?Things like hard-wired smoke detectors and emergency flood lights on every floor of the front and back hallways are required.

Also, and this is HUGE, call the DCA (state gov't dept that issues the green card) at 609-633-6232 and check to see if there have already been fines levied against the property AND owner for the violations. If so and the fines have turned into judgments then they'll show up on a title search and you'll know about them. If they're not yet judgments then you won't find them on a title report and instead you'll likely get stuck with them when you buy the property and find that you can't get the green card without paying the fines.

3. Your oil-to-gas conversion estimate appears low and causes me to suspect that you'll be maintaining one gas boiler for the entire building. If so, I recommend you don't. The cost to heat is huge in NJ with minimum heating temperature mandates (I can't remember what they were) for temperature and duration (68 degrees around the clock from Oct. 1 to April 15?). Imo, to control costs you will want individual heating units and eventually switch each tenant (upon lease renewal or tenant replacement?) to paying for their own gas. The cost for this needs to be calculated properly and the legality and logistics discussed thoroughly with your attorney.

4. NJ is a tough pro-tenant state. Make sure you thoroughly discuss your deal with a real estate attorney who is well versed in commercial real estate. You want to be protected when entering a deal to purchase a residential apartment building in this state.

If you want PM me and I'll forward you to a local group or two where you can speak to other experienced and local investors, some more experienced than myself in commercial (I owned and managed a 12 unit building several years ago but have since been dealing primarily in residential including 3 families which fall under the DCA's jurisdiction).