Triplex Deal Analysis

[Richard Parseghian]

Hi Everyone,

I currently have my first property under attorney review. (My offer was made prior to the major Corona Outbreak in the US)

It's a triplex in Dunellen, NJ (B- Neighborhood) I would be house hacking and there's is a massive fully paved lot in rear of the home that has a heated garage with a gated entrance (Between 1-2 car garage) which tenants don't have access to and is not rented since the owner kept it for his son who is a mechanic.

The house needs a good amount of repairs such as stucco siding repairs, lot re pavement, new furnaces, and cosmetic updates. (I'm estimating about 40K of repairs total)

I would be using an FHA loan with 3.5% down at a 4.65% rate (Apparently there is a huge spike due to liquidity issues, I was originally quoted at 3.35% so this is really blowing up my numbers). Given the uncertainty I'm also hesitant to be so heavily leveraged (Though I would have 10K cash reserves and 20K in a Personnel LOC).

The concern I have is with the recession and COVID-19 if I would be able to rent the back lot as initially planned. Furthermore due to the new rate increase that eats away my originally planned property management fee I factored to my original scenario when making the offer. 

In either scenario I would not positively cash flow when factoring in property management fees though I'm being conservative on my ability to increase unit rent roll through renovations. I would also be able to refinance in a year or two before moving out, but obviously that comes at a large cost and I wouldn't want to do that till I build up 20% equity to eliminate PMI.

What's everyone's thoughts. Are my concerns valid and I should walk, or is it analysis paralysis with all the uncertainty and I should move forward? (Note that I do live at home with my parents and currently have a 70% savings rate so it's not like this is offsetting major rental expenses)

Best Case Analysis:(With $500/month lot rental and Without Property Management)

Worst Case Analysis: (Without $500/month lot rental or Property Management)