Duplex Property Analysis....Opinions?

Question

Hey everyone! My boyfriend and I are working on getting our first deal in South Jersey. We want to put an offer in on a duplex that we would like to house hack for the first year.

Attached is the spreadsheet where we ran our numbers. (Numbers ran for when we move out.)

Any opinions? Does it look like we are missing or miscalculating anything?

Thanks!

https://drive.google.com/file/d/1crMAL0J5cZX7SuhcYGIQrq5Cr_GLGDiQ/view?usp=sharing

Mike Bonadies · Answer

I wish you the best luck @Rachel Reese with your investing career. House Hacking is a very smart start. I did that to get started and a very fast effect on growing my business. To your deal...

I am a landlord and co-own a property management company that specializes in South Jersey. I manage a bunch in and around the Pitman area. Here are some things I see.

-Your 3 bed rent is slightly too high. A 3/1 in Pitman is closer to 1400 if its a duplex. I think you are picking up some college rentals in your comps which go around $450 to $550 a bedroom.

-Your garage rental sounds low. You can get $75 bucks a bay depending on size and if power are present.

-You need to verify if utilities are actually split. Pitman has a lot of MFHs that don't have split utilities. If its not split that utilities number should be closer to $300 a month.

-Got to love Pitman prop taxes, super high

-$300 is a month for cap ex/maintenance is fine, but as @Stephen Kappre make sure you verify the condition of all the mechanicals of the house

-you'll spend about $300 a year on COs/registration with the township. You should bake that number in there.

Overall

$284k is high for a duplex in Pitman. You can pick up duplexes in other areas of South Jersey for $240k to $120k (depending on town). Spending $1400 a month to house hack is almost the same as having a SFH house so I think there are better deals out there if you are trying to mitigate your mortgage/rent payment. Keep looking and you will find a deal. If you aren't tied to Pitman, try looking in Franklinville, Westville, or Woodbury. Some great house-hacking opportunities in those areas.

Best Luck!

Leonard B. · Answer

Hey, @Rachel Reese.

I’m a newbie but, I like to respond to situations like yours because it makes me call on and employ the knowledge I’ve attained about REI, and the skills and abilities I’ll need to employ to close a deal myself.  So in essence you are providing us with case studies! Thanks for the education!

Here’s my contribution:

It’s a challenge for me to comment on the property without seeing photos.

- I recommend using the BP calculator to help you run numbers.  It is free for the first 5 times.

- Built in 1920. Check out this BP article about Capex- see link below.  And also see the screen shot below.  There is a lot to consider since it was built in 1920.

https://www.biggerpockets.com/blog/2015-10-13-real-estate-capex-estimate-capital-expenditures

- I’m gonna guess you’ve not done due diligence on the place? If so,  scrutinize the property again to get that asking price down.

Also, you can account for your time and effort as a property manager.  So when your business scales you may not have the time to manage the 100 doors you will gain in the near future:-), you can get an idea of how much to pay a property manager/company.

Good luck,

Leonard

Rachel Reese · Answer

@Mike Bonadies

Wow, REALLY appreciate all of that info! We are definitely open to others areas. After hearing all of the feedback and see the property we are going to keep looking.

Thanks so much!

Yuan Tian · Answer

If you plan to keep longer I think you should also include a scenario analysis and IRR analysis.

Stephen Kappre · Answer

@Rachel Reese @Leonard B. I had some of the same initial thoughts maybe as Leonard ... With a “1920’s” house I personally love the older woodwork, charm, style etc but expenses can quickly run away considering a roof, systems, windows etc and those can take a major chunk out of the income or put you in the negative. Of course I have no idea of the condition of this home, just something to keep in mind. Consider bringing someone with you that you trust to give solid estimates on work needed now or needed soon. Good luck! :)

Jason Reynolds · Answer

Hey Rachel, I'm also working on getting my first deal in SJ! I grew up not too far from Pitman. Just a couple things I noticed in your calcs:

1. Your property tax number seems pretty high compared to most duplexes I've been running the number on in similar areas. Might want to see if you can get confirmation from the seller on that if you haven't already.

2. I noticed it was built in 1920. Hard to say without seeing the property itself and knowing how old the roof, etc are, but you may want to consider allocating 10% to capex or maintenance/repairs instead of 5%.

Hope this helps, best of luck and let me know how it goes if you do submit an offer!

Jason

Rachel Reese · Answer

@Dan Costantino makes sense. Thank you.

We have just been looking on the MLS so far, but we know deals would be better off market.

Rachel Reese · Answer

@Leonard B. Thanks so much! Appreciate all the input! We are definitely going to try and get that price down quite a bit to help the numbers out.

Dan Costantino · Answer

@Rachel Reese, House Hacking is a great idea!  I know NJ is a different market than Pittsburgh, PA (my market).  Those numbers would be way too tight for me to consider.

Great job accruing for Maintenance and Capex, though I think you will find those figures are very light.  If you need a furnace, or a rental turnover because the tenants didn't take care of the unit, you will lose money for the whole year.  If you are ok with the principal paydown being considered your investment, then fine.  Everyone has their own strategy.  Especially when you want to live in it for a while.

But the numbers do not indicate that this is a great investment on a cash flow basis.  Perhaps a 5-6 cap is good in South Jersey.

Have you gone after off-market deals?  That is usually where I find the better returns.

Good luck!!!!!!!

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