All Forum Posts by: Joe P.

Hi all - thinking of putting in an offer on a property in South Jersey. I am having trouble hearing back from the seller on some of the costs of the property so I'm trying to get a sense of what costs I might encounter. I so very much want to put an offer on the property and I've estimated some costs, but would like to get some calibration from other landlords/homeowners.

The owner pays:

Heating for 2 units (a 2 BR/3 BR) - I estimate this to be $1200 per year ($600 for each unit)

Common electric - Assuming $600 per year ($50 per month)

Water - Assuming $1800 per year ($150 per month for both units)

Sewer-  Assuming a flat charge, but unsure, assuming $600 per year for the property

Garbage - Not sure if there is a garbage cost in NJ, but assuming $500 per year for the property

I have other expenses already lined up, e.g. PITI, CAPEX, Vacancy, Maintenance, etc. Just looking to align some of the "township" costs based upon what other New Jersey residents/landlords may be paying.

Thanks in advance!

John with great points as always! I'd like to answer your "needed money" question a bit differently -- I think the cash needed is important as it'll dictate what you can ultimately spend on a house. John and Elizabeth made great points about reserves as well; nobody buys a house and just drops their stuff in with a sigh of "I'm home!" Ultimately you'll need to fix something, change something, etc.

I'd also draw attention to the cash flow number at the end of the month you want to hit. You could find the property you want, in the area you want, at the price you want, have the right cash on hand, have a tenant lined up, etc. -- but if the numbers don't work, is it a good deal? The idea behind house hacking should not be about "hoping" your mortgage gets covered. What do you want out of this, and what is your long term plan?

Frankly, if I was to do a house hack at this point, I'd want the mortgage covered, which might allow me to spend the money I would have on mortgage into a savings account, which might give me 20-25% in X years to execute my first investment property. That's a goal, that's a plan. Don't house hack just to house hack -- make the numbers work and make sure whatever it is you are doing, it fits within whatever plan/goal you've outlined. And if you haven't outlined a plan/goal, then I suggest you do that first.

I was renting out my first home while my wife and I moved into our primary residence. I KNEW I wanted to be investment properties, yet I had no goal of getting there. I made ZERO money on that property because the numbers WERE NOT RIGHT. It took me 2 years to figure out that the only way to advance my true goal forward was to dump that property because it was never going to happen otherwise. The biggest mistake I made was not having a goal in mind, and not having a plan behind it. Learn from my mistake -- figure out what the end goal is and then start framing your next steps with that goal in mind. You'll get there quicker and more efficiently.

Good luck - never hesitate to reach out!

I know this thread has a ton of responses already, and most of them are excellent. I thought I would weigh in with a couple of quick points I may not have seen already.

1.  Our job, in my opinion, is to not only enrich our personal/financial well-being, but more importantly, provide a safe and habitable locale for our tenants. I think we sometimes look past this as investors but ultimately, a good landlord is not a landlord who gets in it for the money. Ed Snider said it best: the end result should be money, but the reason should not be.

1A.  One of your tenants has alleged an assault that has occurred ON YOUR PROPERTY. I'd take the claim seriously and treat it with respect, because not doing so could cause a ton of headaches in the long run.

1B.  Did the assault occur while it was in your possession or the sellers? Chances are this seller knew there were issues and didn't disclose them, also worrying me.

2.  I agree with what some folks are saying that the tenant should not call the shots, so you're dealing with one of two types of tenants. The first is looking for an excuse not to pay their fair share of the rent. The second might be a scared/angry tenant who feels they have been injusticed and are looking to "square up" -- again, a discussion with your tenant might result in a win-win.

3.  I, like others, am concerned about the situation in general with these tenants. If you've got one tenant threatening to not pay partial rent and the other assaulting other tenants, you've inherited worse than drama, in my opinion. If I were you I would be watching this property like a hawk. I hope as part of your purchase you've taken initial pictures of the units; if this is treated with the right amount of push/pull you could be dealing with a tricky situation.

Best of luck to you and keep us posted!

Thank you to everyone who replied - let me see if I can adjust the numbers here slightly and respond to your questions/feedback (which I GREATLY appreciate!)

@Lana Lee: the neighborhood is blue collar. Schools aren't that great in NJ to begin with; the town reminds me of Roebling, NJ, if you've ever been there. Its got some grit to it but the proximity to Philadelphia and other nearby NJ towns is very good. While my renting experience is not as extensive as some, I've found "quality" tenants to be difficult in their own ways. I want to provide safe, affordable housing to people who need a safe and affordable home, and want to treat the property well. I don't consider the neighborhood to be high risk at all - my rule of thumb is that if I wouldn't live there, personally, I don't want to invest there either. I would live in this neighborhood.

@Rigo V.and @Natalie Schanne, you make some great points, so I'll add them into my analysis:

Property Management - I believe most firms charge in the ~8% range? If so, assume $160 p/m at $2000 rental income.

Vacancy - was already applied (at 10%)

CapEx - will go with 10% to be safe, although we all know a new roof or something can blow that out of the water. Assume $200 p/m at $2000 rental income.

Maintenance - assume 5% although I think this is generous, so assume $100 p/m at $2000 rental income.

Utilities - assume I will pay water, which will probably be $75 per unit, so $150 p/m

Landlord License/Inspections/Fees/etc. - not aware of any

Property Taxes - already accounted for in PITI

Landlord Insurance - assume you are talking about a landlord policy? If so I've budgeted $120 per month earlier.

Bringing us home, I am adding $610 p/m to my total expenses (160+200+100+150):

• $2000 per month for both units ($24,000 annually) and a 10% vacancy rate...$21,600 in NOI
• The PITI would be around $1000 per month (perhaps even slightly less)...$12,000 in TOE
• CapEx+ is $610 per month...$7,320 in CapEx+ (does this feel like a high number to anyone?)

Based on the above, clearing $190 p/m, or $95 per door.

Hi all! I recently sold my SFR that I was renting out - it was my first home I decided to keep to "get into the biz" but the numbers just weren't working. I was able to get some proceeds from that sale and I'm ready for my first purchase.

I found a property in NJ (I am in PA - Philadelphia) close to me, and the numbers seem almost too good to be true. I hesitate to give away too much info so I will provide some raw information that I think should be helpful:

Purchase Price:  $120,000

Financing:  Conventional 25% down at 4%

Yearly Taxes:  ~$4500 (thanks NJ...)

Units:  2 (one 3BR and one 2BR)

Area Rents:  ~$1000 for a 2 BR

I've run the numbers at $2000 per month for both units ($24,000 annually) and a 10% vacancy rate...$21,600 in NOI

The mortgage would be around $1000 per month for PITI (perhaps even slightly less)...$12,000 in TOE

• Cash flow is $800 per month
• CoC Return is 32% (!!!)
• Cap Rate is 8%

Unless I'm wrong, this seems like a no-brainer deal with great numbers as an investor, no? What am I missing?!

My first non-deal has always been my greatest regret, so far.

I could have purchased a 2/1 duplex in South Philadelphia in what is now a very hot neighborhood. The price was a little high and right at my line for pre-approval, but I really liked the place. I got cold feet because the second floor tenant was a bit unkempt and didn't take good care of the property, and the first floor tenant was a heavy smoker. In reality, both of those problems could have been solved, but 24-year-old me couldn't get around it.

I ended up buying a SFH, 1 bedroom, in a decent neighborhood. I recently sold it for very little gain of the minuscule amount of equity I build over the last 7 years on a FHA loan, 3 of which were rented out. I kick myself often for that.

Moral of the story, @Forrest Holt mentioned a duplex/house hack, and I couldn't agree more. You're focused on apartment buildings, which is great, but what experience do you have working with even one unit/one tenant? If you can find a 2/1 duplex, make the numbers work, possibly house hack -- someone is paying down your mortgage and helping to build you equity month-over-month, and you get the experience of working with tenants, property upkeep, management, etc.

Being young, short on cash, etc, the opportunity is there to look at a property that might need some work, or might be in the next up and coming area, and start to build your portfolio. The only good thing that happened with my SFH was that the neighborhood was on the up and up and I was able to command about 10-15% higher rents per year.

Brings up a good question. I haven't had the pleasure of working in duplexes+ (yet), but how do you and other landlords approach items like this? When someone moves in do you introduce them all and say "hey, you're all responsible here, figure it out"? Or perhaps once you get into anything with more than one unit, you put in maintenance fees and have someone take care of it for them?

The operational mind in me is going nuts right now with these scenarios! :)

I have a separate clause in my that any fines levied by the city on the property, e.g. for lack of snow removal, early placement of trash, etc., would be passed along to the tenant(s). A duplex makes its tough, obviously, especially if you can't prove who did it. People are spiteful and if it was one versus the other, you could cause conflict between them and turn a good tenant into a bad one, over 25 to 50 dollars! But that could also be a case of me escalating way too far in my mind.

If this is the first instance, you might want to pay it and bring them together with a change they sign off of, that they'll both pay the fine if it were to happen again. I always hesitate "setting the precedent" so I'm curious to see what other landlords think.

Mike -- if you've worked out the numbers and process, and built a contingency for any unforseen events that come up along the way, and the deal looks worth it to you, you aren't crazy.

But in my mind, I don't know enough about any of these "barriers" - tax sale, zoning for a duplex, structural issues in a home, etc. If you've worked all that out and aren't concerned, go for it!

I wasn't quite sure myself. I don't really know any full time investors but I know there are some good Meetup groups where you could network with someone. I joined the Greater Philadelphia Real Estate Network meetup group and I've been meaning to go to discussions to listen and network with folks. Sorry I couldn't be more of a help.