NJ is a competitive market and double-digit CAP rates are not common.
There’s a rooming house in my town that is going for $800,000.
Gross income: $150k
Net income: $95k
That’s about a 12% cap rate if this house is purchased cash.
I would finance it.
25% downpayment = $200,000
$600k @ 5% for 20 years = $4,000/mo
That leaves about $4,000/mo net profit.
$48k/yr for $200k cash investment is about 25% CAP.
A rooming house comes with the challenge of maintaining multiple rooms/tenants/etc. But this rooming is a 5minute walk from where I live. And I believe I can target a niche crowd of tenants who aren’t deadbeats/drug abusers/etc. And I would have a superintendent live in one of the rooms to manage the property. It’s currently managed by an absentee owner who has owned it for decades and it operates just fine.
Any thoughts on this investment? Please avoid discussing deadbeat tenants/etc. I have good reason to believe that I’ll be able to attract consistently decent tenants.