210K cash to invest in NJ Real Estate (Edison, Trenton: short sales, renter)
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Hi There ,
I am struggling to find the answer to my investment question.
We are couple who has worked very hard in consulting jobs and saved up 210 K nest egg.We plan to use this capital for real estate investment property.I have lived in North Brunswick for few years . So was thinking of buying a single family home to rent out in Edison .
The reason for picking Edison is that it a dense commuter town. The crime rate is low as per Trulia and schools are decent.
Incoming p/a:
Rented at 1700 /mo ( source Trulia) . Assuming out of 12 months property is rented out for 10 months. Assuming Gas, Electricity, Water, Sewer & garbage bills will be tenant's responsibility.
Major Risks :
1. Flood/ Fire damage
2. Tenant defaulting on rent
3. Litigation by tenant
__________________________________________________ _________________
Are these number way out of line ? Have I missed anything major ?
As long as there is a risk mitigation plan and a good property manger , do you think this is an viable investment plan ?
Well I like your logic that you assume you are only rented out 10 of the 12 months. Most poeople do not think that far ahead. Just think you should check that if something really bad happens (like a renter that doesn't pay for an entire year), you do not lose the house (or worse, you "real" house).
You might want to bump the rent a bit and pay for the lawncare yourself. Renters will not have a lawn mower, and they are not going to take care of the grass. At the end, the best case would be a lawn of weeds. Not sure how sewer and garbage work in Edison, but you might want to do the same for that. I am guessing the sewer bill would still be in your name/your responsiiblity if they do not pay, and the last thing you would want is for them to try and do something silly with garbage (like store it in the garage and dump it once a month. You will have a house of bugs).
Interest rates are low, why not leverage that cash and take out a loan? I know they have moved up for successful real estate investors put as little money upfront as possible. Think about 30% down with mortgage, you can do a lot more of these investments instead of just one.
Hi There ,
I am struggling to find the answer to my investment question.
We are couple who has worked very hard in consulting jobs and saved up 210 K nest egg.We plan to use this capital for real estate investment property.I have lived in North Brunswick for few years . So was thinking of buying a single family home to rent out in Edison .
The reason for picking Edison is that it a dense commuter town. The crime rate is low as per Trulia and schools are decent.
Incoming p/a:
Rented at 1700 /mo ( source Trulia) . Assuming out of 12 months property is rented out for 10 months. Assuming Gas, Electricity, Water, Sewer & garbage bills will be tenant's responsibility.
Major Risks :
1. Flood/ Fire damage
2. Tenant defaulting on rent
3. Litigation by tenant
__________________________________________________ _________________
Are these number way out of line ? Have I missed anything major ?
As long as there is a risk mitigation plan and a good property manger , do you think this is an viable investment plan ?
Thank you in advance,
C.
1.) Your investment return will be much better if you can use some leverage. Rates are the lowest they've been in a lifetime. You could lock 30 year money for very cheap and as your rental income grows you will be realizing increasing returns.
2.) The major risk is tenant default or tenant caused damage. You mitigate those risks by doing a good job screening your tenants: background check, credit check, references, and collecting a deposit.
4% ROI is not worth the hassle. IMO you want at least 10%+. Edison is probably not a good place to invest as housing prices are still fairly high. I have a couple properties in low crime areas outside of Trenton (think Ewing/Hamilton etc) area generating about 15% ROI. The key was that the purchased price was super low. All short sales.
Interest rates are low, why not leverage that cash and take out a loan? I know they have moved up for successful real estate investors put as little money upfront as possible. Think about 30% down with mortgage, you can do a lot more of these investments instead of just one.
a lot of leverage can kill financially, I would be careful in I were the op.
4% ROI is not worth the hassle. IMO you want at least 10%+. Edison is probably not a good place to invest as housing prices are still fairly high. I have a couple properties in low crime areas outside of Trenton (think Ewing/Hamilton etc) area generating about 15% ROI. The key was that the purchased price was super low. All short sales.
Agree with this 100%, you must buy super low and the majority of people that make money with the amount of money you have are going to do so in the slum areas or in the nicer parts of bad cities.
4% ROI is not worth the hassle. IMO you want at least 10%+. Edison is probably not a good place to invest as housing prices are still fairly high. I have a couple properties in low crime areas outside of Trenton (think Ewing/Hamilton etc) area generating about 15% ROI. The key was that the purchased price was super low. All short sales.
That 4% becomes an 8% with 50% leverage. I don't think you can achieve a 10% without leverage. I don't an apples-to-apples comparison is being made here.
That is assuming zero borrowing cost. Anyway I was not talking about leverage at all. Pure cash deals on short sales. You can certainly borrow to increase your ROI and I do have a property where I did. But the point was that the OP's ROI is just flat out not worth it the way s/he is doing it now.
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