Buying Multi-Family in/around Newark, NJ

Newark, New Jersey
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Buying Multi-Family in/around Newark, NJ

Djimitri Celestin
Member since 2022 · 4 posts · 1 vote

Hello everyone!

Rookie investor here, in the process of buying my first multi-family. I've seen quite a few properties and am doing my analysis to make an offer.

For Context, there are two specific properties I am considering on an FHA (Pre-Approval Secured)

1) A legal 3 Family with a "bonus unit", that is fully renovated, and all units are leasing at or very close to market rent. Considering the 4 units, it is a home run, with the 3 "legal" units, it cashflows maybe a couple hundred a month. 

2) A legal 4 family with partially finished basement. All units are far below market rent, but all tenants are month to month, with one eviction happening in the next month. At Market rents, this would cashflow quite nicely, without even counting the possibility of utilizing the basements.


- Does anyone have experience with these "bonus units", specifically pertaining to renting them out?

           From What I understand, I could live in them but it's a risk to rent them out to tenants. One website I saw, mentioned that if the local authorities find out, the landlord could be liable for a                    relocation assistance payment to tenant equal to 6 month's rent. 

- How much can a new owner raise rents? 

           It seems NJ state does not have rent control, but certain municipalities have their own rules in place, although I couldn't find conclusive information on what the current rules as of 2023 might be or if they still exist

Thank you in advance for your help! 

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Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
3y

Hi @Djimitri Celestin my pleasure, always here to help NJ investors.

FHA is 3.5% down but you'll have to pay PMI, you'll have to go through FHA appraisal and guidelines. PMI will cost you thousands of extra $ each year. In order to remove PMI you must refi. If rates are lower that's not so bad, although you are forced to restart the loan which stinks. If rates are higher well that really stinks.

The loan I would recommend is a low money down conventional mortgage with NO pmi and NO fha guidelines, no reason to refi (if rates go down you can do buy down anytime) You will have to put 5% down for anything under 720k but you'll be saving thousands without the PMI and the fact you can actually offer less than others because most sellers will find our offers more attractive being that it is not FHA. Sellers, particularly listing agents want nothing to do with FHA. Most lenders do not offer loans like the one I am talking about so they just say its "not possible or does not exist" I will let you know this loan is life changing and all my multi family clients use it.

Long term what does Newark look like, you can find a property and may work the first few years becuase NJ courts will side with you being an owner occupant. The day you move out the owner occupant laws go away and your property becomes a true investment.  In Newark, NJ evictions are near impossible and rent control is very strict.  So you purchase a property that looks great right now and maybe you have some success cleaning it up but most tenants in the area understand the laws and will leverage them to their own advantage.  Last year I raised rents over $500 on 1 property alone, that will never happen in Newark unless you turnover tenants, if tenants refuse to leave and keep paying very low rent they will stay a life time.  If tenants stop paying rent they'll stay many months to a few years before eviction courts maybe ask them to leave.

Owner occupying basement is the closest you can go to making it work but it is still illegal.  

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  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    Hi @Djimitri Celestin first things first FHa loans I try to avoid believe it or not there is such thing as a low money down convectional mortgage with NO pmi that works on multi family purchases, you will save thousands. 

    Second rent control varies town to town in New Jersey. However I will let you know Newark, NJ has some of the strictess landlord laws in the USA.  Deals look great on paper but can do a 180 fast long term.   Applying certain strategies in neighboring towns can set yo up for long term success.  Deals do not look great the first few years but I will let you know my wife and I have been investing for almost a decade now and we are yet to miss a single payment of rent.  We are also financial free and do not depend on employer to survive.  

    Third understanding basement laws regarding legal living space plays a huge part, most basement living space is illegal and you can get hit hard from town. Knows the laws around this is huge from window sizes, local zoning, ceiling heights and proper avenues of egress. If you hear the term bonus unit that typically is code for illegal 

    973-975-3895
    House Hacking New Jersey563 Reviews
    WebsiteView Page
    1Reply
  • Djimitri Celestin
    OP
    Member since 2022 · 4 posts · 1 vote
    3y

    Hi @Shawn Mcenteer

    Thank you for your thoughtful response!

    I'm not quite following what you mean on the FHA. The way I look at it, say if I'm buying a 100K property with 5% down, vs 20% down, I'm keeping 15K in cash. That would be considered a savings in my opinion. Is there something I am missing? Keen to get your take!

    Noted on Newark! Might you be able to help me with an example of a deal that took a 180 long term? I am looking at neighboring towns as well, but numbers seem to work better in Newark, at least for the properties I've found thus far. I am certainly keeping an open mind in that sense. 

    Finally, as far as basement laws, is there anything that precludes owners from living in a "Bonus" unit?

    0Reply
  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    Hi @Djimitri Celestin my pleasure, always here to help NJ investors.

    FHA is 3.5% down but you'll have to pay PMI, you'll have to go through FHA appraisal and guidelines. PMI will cost you thousands of extra $ each year. In order to remove PMI you must refi. If rates are lower that's not so bad, although you are forced to restart the loan which stinks. If rates are higher well that really stinks.

    The loan I would recommend is a low money down conventional mortgage with NO pmi and NO fha guidelines, no reason to refi (if rates go down you can do buy down anytime) You will have to put 5% down for anything under 720k but you'll be saving thousands without the PMI and the fact you can actually offer less than others because most sellers will find our offers more attractive being that it is not FHA. Sellers, particularly listing agents want nothing to do with FHA. Most lenders do not offer loans like the one I am talking about so they just say its "not possible or does not exist" I will let you know this loan is life changing and all my multi family clients use it.

    Long term what does Newark look like, you can find a property and may work the first few years becuase NJ courts will side with you being an owner occupant. The day you move out the owner occupant laws go away and your property becomes a true investment.  In Newark, NJ evictions are near impossible and rent control is very strict.  So you purchase a property that looks great right now and maybe you have some success cleaning it up but most tenants in the area understand the laws and will leverage them to their own advantage.  Last year I raised rents over $500 on 1 property alone, that will never happen in Newark unless you turnover tenants, if tenants refuse to leave and keep paying very low rent they will stay a life time.  If tenants stop paying rent they'll stay many months to a few years before eviction courts maybe ask them to leave.

    Owner occupying basement is the closest you can go to making it work but it is still illegal.  

    973-975-3895
    House Hacking New Jersey563 Reviews
    WebsiteView Page
    2Reply
  • Djimitri Celestin
    OP
    Member since 2022 · 4 posts · 1 vote
    3y

    Thanks so much Shawn!!! MUCH appreciated!

    1Reply
  • Shawn McenteerBusiness Member
    Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    My pleasure @Djimitri Celestin always happy to hop on a call dice deeper with you on the subject, please feel free to reach out

    973-975-3895
    House Hacking New Jersey563 Reviews
    WebsiteView Page
    1Reply
  • Anthony Marin
    Rental Property Investor · Newark, NJ · Member since 2017 · 88 posts · 75 votes
    3y

    Hi @Djimitri Celestin

    The most important thing when investing in Newark is what area are you investing in?  Once you know the risk/reward on those deals then we can discuss what type of loans work best for those deals.  At a high level the East, Central and North are the better areas to invest in.  The South and the West are more challenging.  Even with that said, in all those areas there are blocks you don't want to invest in.  I own a brokerage in Newark and if I can be a resource for you please feel free to DM me.  Thanks and wish you the best.

    1Reply
  • Djimitri Celestin
    OP
    Member since 2022 · 4 posts · 1 vote
    3y

    Hi Anthony! I'll keep that in mind! Thanks!

    0Reply
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