Rental Property Investor · Jersey City, NJ · Member since 2020 · 36 posts · 14 votes
Hi everyone! Newbie here, excited to purchase my first property. I recently did an analysis on a duplex in Hoboken, NJ on a street that is very popular and is up and coming. I just realized on my analysis of the property that I didn't implement a property management fee (even though we would be the ones managing - I know it's an important number to take into consideration) and our cash flow is now negative. However, the area is definitely hot and this would be less of a property of investment in the short-term but moreso wanting the building to be in the family for our kids. Does that make it worth it? Or is it still something we shouldn't consider given the numbers? I'm wondering if this is just me being excited for my first property or if it would actually be worth it given the future potential.
@Serena Tillman I see this in many cases with investors looking for their first property, it is very easy to jump into a deal based more on emotion than on the numbers. Make sure to double check your numbers, do you have vacancy, maintenance, CapEx reserves.. etc. There may come a time when you will need property management or an unexpected cost comes up and you will not have the buffer to cover it.
I would agree with Daniel, and advice you especially for the first deal to not gamble on appreciation but to buy a deal that pays for itself over the long run. Keep looking and you fill find one!
@Serena Tillman when you’re first getting started it’s easy to want to jump right in immediately out of excitement. But buying a duplex that’s cash flow negative with the hopes it will appreciate is a dangerous game and will likely lead to short career in real estate investing. I know a couple of wealthy people who have had success doing this only because their primary income was substantial so they were easily able to support the negative cash flow. But I’m talking about people with $30k+ of disposable income a month.
My advice would be to make it a rule that you only buy properties that cash flow, period. Keep looking and I’m sure you can find a property where the numbers work!
@Serena Tillman I see this in many cases with investors looking for their first property, it is very easy to jump into a deal based more on emotion than on the numbers. Make sure to double check your numbers, do you have vacancy, maintenance, CapEx reserves.. etc. There may come a time when you will need property management or an unexpected cost comes up and you will not have the buffer to cover it.
I would agree with Daniel, and advice you especially for the first deal to not gamble on appreciation but to buy a deal that pays for itself over the long run. Keep looking and you fill find one!
I'd look carefully at your numbers and not worry about PM fee, if you know for sure that you will be managing it. I would think about increases to property taxes and vacancies. Are the rents at market value, are there any upcoming repairs (roof, hot water tank, etc)? From your description the value will likely go up and you are looking at keeping it long term. Do you have extra money in case your numbers are off?
@Serena Tillman as someone who is very much a risk taker, I also know the numbers don't lie. As many other BPers have mentioned, don't let your emotions lead your deals. If it's not a good deal now, there's absolutely no guarantee that it will be a good deal later. In fact, it might be worse later.
If this area is truly up and coming as you mentioned, are you sure you've taken the correct rent figures into consideration? One thing that we've found is that if you may be able to charge more if you put a little more into the finishes and fixtures.
What if you did it as a fix & flip, would the deal make sense? Did you use a BP calculator tool? I'd be happy to take a look at your analysis if you have any doubts about it but adding in a % for PM fee is recommended, but not required when you're self managing.
@Serena Tillman as someone who is very much a risk taker, I also know the numbers don't lie. As many other BPers have mentioned, don't let your emotions lead your deals. If it's not a good deal now, there's absolutely no guarantee that it will be a good deal later. In fact, it might be worse later.
If this area is truly up and coming as you mentioned, are you sure you've taken the correct rent figures into consideration? One thing that we've found is that if you may be able to charge more if you put a little more into the finishes and fixtures.
What if you did it as a fix & flip, would the deal make sense? Did you use a BP calculator tool? I'd be happy to take a look at your analysis if you have any doubts about it but adding in a % for PM fee is recommended, but not required when you're self managing.
Thank you Bridgette! We're hoping to keep it in the family rather than sell it for a profit right now. But could definitely make some fixes and raise the rent (probably about $300 more between the 2 units - they're already paying market rate). I used the rental property calculator tool and would love if you could look at my analysis - I can PM you.
I'd look carefully at your numbers and not worry about PM fee, if you know for sure that you will be managing it. I would think about increases to property taxes and vacancies. Are the rents at market value, are there any upcoming repairs (roof, hot water tank, etc)? From your description the value will likely go up and you are looking at keeping it long term. Do you have extra money in case your numbers are off?
Hi Theresa, thanks for your reply. The rents are at or very close to market value, but I could probably make some fixes to increase it a bit more. We have flexibility to cover about $1,000/mo of negative cash flow.
@Serena Tillman when you’re first getting started it’s easy to want to jump right in immediately out of excitement. But buying a duplex that’s cash flow negative with the hopes it will appreciate is a dangerous game and will likely lead to short career in real estate investing. I know a couple of wealthy people who have had success doing this only because their primary income was substantial so they were easily able to support the negative cash flow. But I’m talking about people with $30k+ of disposable income a month.
My advice would be to make it a rule that you only buy properties that cash flow, period. Keep looking and I’m sure you can find a property where the numbers work!
Hi Daniel, my husband and I definitely don't have $30k+ of disposable income a month! Closer to about $10k... but definitely don't want my real estate career to be cut short because I made a decision based on emotion.
@Serena Tillman okay makes sense so then I'd absolutely maximize the rent by adding the finishes that will get you the most rent. I'll be on the look out for your PM.
@Serena Tillman keep analyzing properties, networking and learning how to find leads and you will find a cash flowing deal soon enough. That’s not a bad place to be and having that excess cash flow will help you progress in your real estate business quicker.
The reality is, this is a capital intensive business. Good luck!
You're too eager...WAY too eager if all it took was adding the PM cost to the overall monthly costs to get you to negative cash flow. That tells me your positive cash flow before the PM addition was probably not all that positive to begin with.
@Serena Tillman I did something similar in Hoboken, and I came to the conclusion that the only investment that can make sense if you dont want to bank on appreciation is buying and househacking, ie buy a multipropriety, live in one and rent the other part.
Reach me with a PM, we do have a Hoboken/JC group you can join
@Serena Tillman I did something similar in Hoboken, and I came to the conclusion that the only investment that can make sense if you dont want to bank on appreciation is buying and househacking, ie buy a multipropriety, live in one and rent the other part.
Reach me with a PM, we do have a Hoboken/JC group you can join
@Serena Tillman you don't want to put lots of money into it every month, but if it is breaking even without the PM fee (which you won't use) and that includes a contingency for vacancies and repairs, in an up and coming area for the long term, I'd do it.
@Serena Tillman Hey I am new to this investing world too. Based on what I’ve been learning is if the numbers aren’t good then you shouldn’t invest in it. Brandon always say one of the commons mistakes is getting to excited on the property when you should be getting more excited on the deal. He also says to fall in love with the deal , not the property. There is no emotion when it comes to finding rental properties. This is just my perspective from what I learned .