All Forum Posts by: Parag Shah

I think PNC has a 5% down payment program, but not sure. Inquire with them. 3.5% FHA should definitely work since it's owner-occupied, but higher MIP payment is an obvious drawback.

@Darren Sager is a great investor-friendly agent I'm working with.  Listen to episode 48 of the BP podcast.  He gave some great insight, and is definitely knowledgeable about the northern NJ market.

I see you're located in Sayreville.  I don't know what types of neighborhoods or investment properties you're interested in, but at lower price points I've heard good things about Perth Amboy.

Thanks @Colin Smith, that's sort of my thinking for now.  If we did up getting jobs in SF, we would almost certainly live out over in the East Bay, either Berkeley/Oakland/etc.  I've looked a lot at properties out there and there's virtually nothing that we would be able to afford.  Even areas further east (Walnut Creek, San Ramon, etc), median home prices are $800K.

I'm most likely going to have to either suck it up and use a property manager, or just wait until I'm out in the Bay Area and try investing in markets like Sacramento.

I currently reside in NJ and am looking to start REI. I have a rough timeline where my girlfriend and I plan on moving out to San Francisco (for personal reasons) and searching for jobs out there within 6-8 months.

Does it make sense to purchase a property here for buy-and-hold? By the time I found something, closed on it, did repairs, and got renters in there, I would only have a couple months of self-managing before I have to leave in the hands of property managers.  I've heard for beginners it's important to self-manage since you need to keep expenses low and it's a valuable educational opportunity.

@Darren Sager would be a good person to talk to about investor-friendly agents in the Northern Jersey area.  He's an agent himself, and if he's unable to help you (I think your target market is slightly outside of his specialty) then perhaps he can give you a recommendation on who to contact.

Ibrahim - it's in the town of Orange, and yes property taxes are definitely a killer in this deal! Thanks for that revision to my insurance, I just revised it up in my model, I was keeping it at a constant $1K figure for all the properties I was analyzing and had talked to a lender who agreed with that number, but I think you're more correct than he is. The MLS listing indicates it is a legal 3 family, but yes I'll be sure to make sure I ask for that certificate. The listing indicates tenant pays heat so I'm assuming everything is separated. The only thing owner pays for is water. The condition seems fine, but might require some cosmetic touchup. Thanks for the article I am definitely going to take a look at that.

Bram - you're killing me man! In all seriousness, thanks for those numbers and giving me a reality check.  I'm curious to know why you assume 10% for repairs/capex when you're also assuming a $5K rehab initially? Wouldn't it make sense to count for one but not the other? Also, your expenses would add up to 84% of rent, assuming the following:

• property taxes (4.6%) = $767
• insurance ($2400 policy) = $200
• repairs/maintenance (10% of gross monthly rent) = $313
• utilities (2% of home value) = $333
• cap ex (10% of gross monthly rent) = $313 
• vacancy (12% of gross monthly rent) = $376
• property mangement (10% of gross monthly rent) = $313

so all that adds up $2,615 on $3,130 of rent --> 84%

isn't that extremely conservative to the point of unreal? i've heard 50% being thrown around BP as a conservative rule of thumb, and I had close to 60% since I thought I was being paranoid.  I don't think there's any investment out there (other than all cash deals) that could survive an 84% expense rate, correct?

The deal clearly passes the 1% rule, it's actually a bit above 1.5% which I believe to be incredible in NJ. 2% is basically unreachable unless you find an absolutely killer deal. Your numbers would require a 2.1% rule in order for me to cash flow approx $100 a month (albeit, with my levels of financing at 3.5% down payment resulting in a higher monthly mortgage payment + PMI).

On an unrelated note, how do you get the @ symbol to display a user? I've been trying to figure that one out for weeks now.

Thanks @EricPedersen, I just went on google maps, typed in my target home address and then typed realtor to search for the local offices.

@JayakrishnaBommasamudram thanks for the advice - the house I'm targeting is in the town next to Newark, and I'm definitely aware of the no-go zones in Newark.

Offer Price: $200K

Financing: FHA loan, 3.5% down payment (already pre approved for this home); 3.875% rate, 30 year fixed

Rents according to MLS posting: Unit 1 - $1310, Unit 2 - $1100, Unit 3 - $720; Total = $3,130

Expenses: I'm forecasting 57% in expenses (more conservative than 50% rule) --> 

• Property taxes - 4.6%
• Insurance - $1000 policy
• Repairs/maintenance - 5% of gross monthly rent
• Utilities - 1% of gross monthly rent
• Cap Ex - 2% of gross monthly rent
• Vacancy - 10% of gross monthly rent
• Property management - 12% of gross monthly rent

Mortgage + PMI = approx $1,043 monthly

Cash Flow (monthly): $163

Cap Rate: 18.8% (gross annual rents divided by purchase price, correct?)

Other details: The home is less than a 5 minute walking distance from the train station (<40 min to NYC); the neighborhood is what I'd estimate a Class B+; the home (from pictures) seems to be in OK condition but may require some touchup

I understand this is an owner occupant deal since I'm using an FHA loan, however I just want to run the numbers assuming it is fully rented out so I can judge based on its cash flow merits.

Finally, if this is a good deal and I should pursue it, how exactly do I get it? I've found it on realtor.com website and I've tried to contact the agent in the "contact us" feature but I haven't heard a reply yet.  I've tried going on google and searching for realtors in that neighborhood but I haven't gotten a single name.  Can anybody point me in the direction of someone who can show this house to me (it's in Essex County, NJ) today?

Thanks everyone for the nice words of motivation as well as some really good tips.

I will certainly be attending some REI meetings in the area, as it seems there are tons of good people to network with.

Look forward to connecting with you guys in the near future. 

GIlbert - thanks for sharing that story, you're absolutely right in that I need good estimates from local contractors and I plan on doing a walkthrough with a GC and going over every square inch to get a sense of what it's going to cost.

Two questions: 

1. How can you arrange financing and get pre-approved in order to get an appointment for the realtor (so that he knows you're not wasting his time) if you actually need to see the house and walk through it with a GC in order to go to a HML and show them how much money you'll need? Isn't this a chicken or the egg conundrum?

2. I saw, using the HML directory provided through BiggerPockets, that there is one in Jersey that doesn't charge points (which I understand to mean % of total purchase price or ARV) and can be as low as 10%. If I get tenants into the property after 6 months, my interest costs would be 10%*6months*total loan, my escrow would be ? (how do you estimate this?), my insurance would be policy $*6months, and origination fees would be ? (how do you estimate this?). I can't imagine this running into the hundreds of thousands of dollars, correct?