Hi All--I began delving heavy into real estate about 12 months ago after attending a "Ride Along" with a successful real estate investor in Philly. I learned a ton and took a bunch of value from that day, and somebody put me on to BiggerPockets. Needless to say I immersed myself in podcasts, books, networking, etc. for the next 6 months and began searching for deals. I am born and raised in NJ and work in Manhattan, so despite heavy pricing, I chose JC due to my familiarity with market and proximity to workplace and life.
Deal Info:
2-family home with "bonus" finished basement with separate entrance. Hudson County NJ
List Price: $649k
Financing:
30 year conventional loan @ 3.375% with a 5% down payment
I tried to get the price down to $625k, but almost lost the deal, so I jumped back up because I was eager to get my feet wet after months of education. The property needed cosmetic+ repair. The home was built in 1890, and had good bones, but in order to get higher rents, I wanted to do some work.
Rehab Completed:
- Replaced Electrical Box; Upgrade Service Ampage; Replaced panel; Added a subpanel
- Painted entire interior of home and exterior of front of home
- Replaced entire kitchen upstairs
- Removed drop ceiling upstairs (looked terrible) & replaced with false ceiling/drywall
- Replaced 4 windows
- Added laminate flooring in basement
- Replaced molding in first unit
- All other little things that come along with rehab--outlets, light fixtures, shower heads, etc.
Total Rehab Costs: ~$48-50k (paid for with CCs + some of my own cash). I did a lot of work in basement unit myself and stopped tracking material costs, that's why there is a range. Rehab took about 2 months.
Acquisition Costs: $32.5k (down payment) + $9k (closing costs were reduced $2.2k due to negotiation) + $49k rehab => $90,500
Rent Roll:
Basement Unit: $725 (renting to a lifelong friend, so I reduced; includes electric, water, and gas) [840 sq ft, 1 bedroom]
Unit 1: $2400 (includes electric, water, and gas) [1,005 sq ft, 3 bedroom]
Unit 2: $1750 + utilities [805 sq ft, 2.5 bedrooms]
Total Gross Rent = $4875
Monthly Expenses:
PITI: $3592 (includes PMI)
Water: ~$110/mo
Gas/Heat/Electric: TBD, I've only had it rented since mid-October and basement didn't get occupied until Dec 1. Expecting ~$200/mo.
Total Monthly Expenses = $3900
Gross Cash Flow: $4875 - $3900 = $975/mo
Annual Cash Flow: $975 x 12 mo = $11,700
Cash-on-Cash ROI: $11,700/$90,500 = 12.92%
Before you say I inflated my numbers.....I put a fair amount of $$$ upfront into this, so I'm not expecting CapEx to be significant (roof is new; I repaired boiler; HWH is new), and this is also one of most densely populated counties in the country so I am not expecting much vacancy. I've been super service oriented with tenants and rents are reasonable. That being said, I'm putting aside ~$200/mo in a reserve account for future repairs and maintenance. Carrying costs were slim to none, as I have used all 12 month zero interest credit cards, which I'm already well on my way to clearing off.
Another thing that I've learned: At these higher price points and markets in the country, one must re-examine rules of thumb like the 1% rule. My gross rent roll is $4900 on a $650k house, and I'm still cashflowing. Secondly, at these price points, loan paydown and appreciation are significant, moreso than cashflow. It has made me realize that cash flow is important and smaller houses may have better price-to-rent ratios but my Net Worth is growing significantly on a monthly basis.
You'll also note I didn't rehab the bathrooms. After I pay down my debt for the rehab, I may re-do the back facade of the home and the bathrooms, then BRRRR out my capital having allowed 1.5 years of appreciation hopefully getting me to a higher ARV. If not, I'll just keep it cash-flowing.
First one was all about learning and going through the motions. I cannot wait to see what my next one will bring me. Aiming for a legit BRRRR next time.
-alex
