What am I missing? Analyzing Properties

[Jason Cornwell]

Hey All,

    I am only just learning and decided to go onto Realtor.com and analyze some properties. My initial thought is that I would analyze a few that caught my eye and all of them would be bad or maybe 1 in 10 would be viable. The odd thing is, all of the first three I looked at, I decided they were good deals, this makes me think I am analyzing incorrectly. Can someone point out where my line of thinking is incorrect?

Address: 258 Duer St

Link: 

https://www.realtor.com/realestateandhomes-detail/258-Duer-St_North-Plainfield_NJ_07060_M63441-92548

Purchase Price: $270,000

Cost to fix up: I'm not sure, the kitchen in one looks nice at least, assume 20,000-40,000

Rent Price: I looked on rentometer and it says for a 3x2 in this city it would be around $2,200 so $4,400 total

Mortgage: estimating around 1800 with 20% down, an extra point for the rate and the full taxes

This would be a cashflow of 2600 (Is this real?) and a cash on cash of +35%

What am I missing?

[Colin Schleifer]

Disclaimer: There are many ways to analyze properties, so this just my opinion.

If this is purely an investment opportunity and not a house hack, you may find it difficult to find a lender willing to do an LTV of 80%. I think it more likely you'll have to put 25% down. I also did a very quick look at rental comps in the area and I think you may be being overly optimistic (I am no where near this area though so if you are comfortable with your numbers then trust them). I estimated a total gross monthly rent of $4,000.

I'd also factor in at least 5% of the monthly rent each for capital expenditures and maintenance.  With the age of this building though you may even want to increase those percentages a bit.  I'd set aside 8% for maintenance and 5% for cap ex for a total of 13%.  You'll also need to factor in vacancy rates, which can vary from area to area.  Try 5% of the monthly rent if you're unsure.

I do not know insurance rates for that area but I'd guess around $1,400 annually.  Assuming the utilities are metered separately, the landlord still likely pays for water and sewer.  I guestimated $60-$70/month for those costs.  Then you also include taxes, which I rounded up to $11,000 annually (ouch!).  Finally, I always throw in a bit extra for snow removal and landscaping costs, usually $50/month.

I estimated an interest rate of 3.875%, spending $30,000 on reno, with the above math and the assumption you are going to self manage the property.  

After all that, my math came out with a cash on cash return of 14.82%.  

Everyone runs their numbers slightly different so you may be more or less conservative based on your comfort level and experience.  I hope that is helpful.