December 10, 2018

PROPERTY #2: PICTURES & PROJECTIONS

Whoever said the first property is the hardest, obviously never bought a second one.

For us, getting that second property was rough. There was so much more uncertainty. For our first investment, we planned on house-hacking and so our criteria was very specific. We knew exactly what areas we would consider, the size, the complexity of the renovation, and how to fund it.

But we didn’t have this same focused vision on the second one. Since we wouldn’t be living in it, there were so many possibilities! Did we want a full gut duplex in the suburbs, a light rehab quad in the city, a vacation rental in Thailand, or turn-key single family in the South. Staying focused was so hard. We felt like puppies running after every car that drove by unable to ever catch one.

So we niched down.

We threw out anything that involved investing out of state and focused on our original farm area which is a 40 square mile section in South Jersey.

After a bit of focused work and many conversations about our goals, we finally found a property that worked for us. Right location, right condition, and right price.

So let me introduce to you to investment property number two, the brick row home!

PROPERTY #2 – THE PICTURES

This end unit row home is three bedrooms / 1 bath sitting at just under 1,200 sq. ft. The sellers laid new carpet and repainted all of the walls before listing and is an overall pretty clean unit. Let’s take a look!

Exterior– We’ll be updating the second floor bump out with new vinyl siding, replacing the front door and storm door, and painting the deck a more neutral color.

PROPERTY #2 – THE NUMBERS

List Price: $69,000

Purchase Price: $69,000

Taxes: $3,087

Down Payment: $13,800 (20% down)

Interest Rate on 30 Year Mortgage: 6%

Mortgage Loan Amount: $55,200

Closing Costs: $4,000 ish

Estimated Rehab: $3,500

PROPERTY MONTHLY EXPENSES

Fixed Expenses

Home Mortgage: $330.95

Property Taxes: $251.31

Home Insurance: $76.33

Water/ Sewer: Bill back to tenant

Total Fixed Expenses: $658.59

Expenses For Reserves

7% Vacancy: $89.25

7% Maintenance and Repairs: $89.25

10% Cap Expenditures: $127.50

7% Property Management Fee: $89.25

We will not be hiring a property management team but one day we might and so we account for it.

Total Reserve Expenses: $395.25

Total For ALL Expenses: $1,053.84

INCOME

Unit 1 (3 Bed 1 Bath): $1,275 / month

Total Income: $1,275 / month

INCOME- EXPENSES = CASH FLOW

There are two types of cash flow. The first is known simply as cash flow and the other is free cash flow. Basically, cash flow is the amount after only deducting fixed expenses and not deducting your reserves such as vacancy and cap. ex. since they are not reoccurring expenses. Free cash flow is the amount after you have accounted for all possible expenses. Fixed and reserves. So the money is free and clear. Pure profit.