Hi everyone!
I wanted to take this opportunity to introduce myself. I've been trying to absorb as much as possible from this website, and hope to be able to give back a little to the community in the future.
I'm in northern New Jersey looking to get into residential rentals (for the time being) within an hour or two in any direction. Therefore, I'm also looking to connect with like-minded people.
I've been looking at lots of different properties, trying to run some numbers and get a feel for what a "good deal" might look like. If you don't mind, I'll run through one briefly; any and all comments/feedback/critique are welcome and greatly appreciated!
2 family house (one 1 BR unit, one 3 BR unit) in Ridgefield Park, asking $365,000, gross rental income of $40,800, and operating expenses of $9,775, for NOI of $31,025. Assuming 20% down with a 6% 30-year fixed mortgage, annual cash flow would be $10,017, or $417.36 per month, per unit.
Those numbers look pretty good to me, but I don't think they include vacancy rate or capex reserve, and I'm not even sure it includes maintenance. Now here are my initial questions:
(1) In this area, and generally, what are appropriate percentages for vacancy, capex, and maintenance?
(2) What does maintenance typically include, as opposed to expenses that may have been deducted from gross rental income to arrive at NOI (in the example above)? Does NOI usually include everything but debt service?
(3) When dealing with a small property, if I have a one month vacancy, or a serious maintenance project, it can set me way behind - for the year! With that in mind, I got this idea into my head that I cannot really get into small multi-family, but rather would need to get into larger ones, say 5 or 6 units, or even larger. However, now that I've learned a little more about REI, I assume that the vacancy, capex, and maintenance percentages are what is supposed to account for those losses. Is this accurate?
(4) How can I tell a good neighborhood from a bad one? This is the single biggest thing holding me back from jumping into this. I do not want to buy something, only to have the area collapse over the next 5 years (or ten, or ever). Just drive around? Ask a RE agent? They, of course, have a vested interest in magnifying positives and minimizing negatives. For example, I'm somewhat familiar (not really for investment purposes, but just being in and around the courthouses) with Jersey City, Paterson and Newark to know that they all have their fair share of bad neighborhoods. But they also have better areas. What can I do to best ensure that I pick a spot that is good and will stay good? Is this impossible to know in advance, and do I have to suck it up and deal with it?
Again, I look forward to hearing anyone's and everyone's take, and I apologize if this post is too long. Thanks in advance!
