Need some feedback/advice please

14 Replies

Hello all! I am a newbie and I originally wanted to start with a multifamily but there's not a lot of inventory where I'm located (Middlesex County in NJ) and other areas I'm considering. Im currently renting a 1BR apartment and every year, my rent keeps increasing and whenever I reach the end of my lease, I feel pressured to make a decision to renew it because I just couldn't find the right timing to purchase a property. With that said, I'm considering purchasing a "cheap" condo to possibly lower my monthly payment and hopefully have some equity within a few years. The extra money I will save monthly will be put towards downpayment for a multi and I figured it will be a bit easier because I won't have the pressure of finding one at a certain time because I wouldn't have a lease to renew. I understand the risks of investing in a condo due to HOA fees associated with it and no guarantee of any appreciation and the association not having sufficient cash reserves (not sure also what is sufficient). I would really appreciate your opinion/feedback as to what I am contemplating. Thank you so much.

What about getting into a roommate situation while you are renting and searching for the right multi?  That should help you save more than if you were buying a cheap condo and it gives you more flexibility.  If you were to get that condo and then look for a multifamily, the financing on the multi family will not be as favorable as if the multi was your first property. your debt to income ratio would not be as good and you would be required to put a heftier down payment on the multifamily.  

Hi @Criselda Ilao , I agree with Ray here. There are some good financing options that come along with first time home buyers, (i.e. FHA), that would enable you to put as low as 3.5% down on a multi-family property, as long as you were living in one of the units. I would advise against the condo, and do your best to cut your current expenses, whether that's finding a new apartment, or getting some roommates.

Thank you @Andrew Beauchemin and @Ray Reed for the response! Roommate situation will not be ideal as my husband and I would like some privacy. FHA loan is actually what I was going to go for when purchasing a multi but I realize I won't be able to do that as a second property. I was just thinking of other strategies to get started and stop paying high rent as soon as possible. I really appreciate your inputs, thank you!

Hi @Criselda Ilao there are plenty of duplexes here in the Mercer County area. Especially in Hamilton, NJ. These are fixer uppers that would allow you to add value to the home while at the same time renting to tenants that would be helping you pay your mortgage. These properties are on the MLS so I would take a look to see if some meet your criteria.

I did a semi-house hack on my first property (a condo in Woodbridge). I bought it low in 2000, renovated (it was stuck in the 80s) and sold it for more than double 13 years later. I wasn't an investor at the time and feel I got lucky with appreciation. The condo thing isn't a terrible idea but you would have to sacrifice your privacy by renting a room or basement out to someone. Duplex or more is your best bet and as the gentleman above stated, take advantage of FHA and 3.5%!

Best of luck!!!

Thank you @Erik Cabral , I appreciate your response. I will definitely look into the Hamilton area. Currently, I'm "stuck" in my rental lease until September 2018 so all I can do for now is keep saving for a downpayment and improving my credit score. But I will definitely start my search around April- May. Thanks again! 

@Criselda Ilao I did a quick search of the MLS for your area (the public side as I only have access to Garden State and NJ MLS systems) and I found 34 multi-families in New Brunswick (huge college town), 9 across the river in Highland Park, and 5 in Edison where you live, Not saying that is a ton of them but it's a pretty good start. Have you been working with an agent in your area? I would suggest starting there as it doesn't cost you anything and he/she will have access to all the latest listings.

@Criselda Ilao - What @Andrew Beauchemin was saying is that four your first purchase, you buy a small multifamily, say 2 or 3 unit, live in one of them and rent out the other unit(s). You will qualify for an FHA loan represent to them that you will live in it. The rules are tightening up with multifamily FHA's so you should find out how much of a down payment you need.

From a personal finance standpoint it sounds like you just need to save up for a down payment (haha don't we all!).  It took my wife and I 5 years to save up a chunk of change for a down payment (and in those 5 years no vacations, no cable tv, 1 car, living on 1 salary and saving the other salary) to do it. Of course my wife and I did it to buy a nice house in a great school district town, so we could have stopped saving after 2 or 3 years at the rate we did, but saving became addictive. The idea is not just save but enjoy saving.  Dave Ramsey and Suze Orman are imprinted in my brain. To ramp up your savings, you might want to break your lease and give up your security deposit, and move in with your parents, in laws or a relative for a year. You lose one month rent in security deposit but save 10 months of rent (you say your lease is til Sept 2018).  Also live on one salary and save the other is huge!  I wish you the best!

When your lease is up for renewal you could contact the manager’s office and see if they would be willing to convert it to a month to month lease. You never know if you don’t ask.

Also consider moving somewhere cheaper or a roommate situation so that you can save up for a down payment quicker.

@Amy Beth Thanks for your response. I did ask my landlord about converting my lease to an “open lease” but they are charging a fee of $600 each time I renew. Do you think it’s worth it to pay this fee?

I am confused by this $600 fee. If the lease goes month to month would the fee then be $600 extra per month on rent or would it be a one time fee? If it is a one time fee I would probably pay it. I would not even consider it if it will be a monthly fee.

Have you priced out other apartments that would be within reasonable commuting distance to work to see if there are other places to rent which would be cheaper? That detail would also factor into the decision. I am thinking that if you could lower your expenses you could save up for a down payment faster.

Also if you keep an annual lease does your lease state anything about what an early termination fee would be?

@Amy Beth The $600 fee is one time. I’ve looked at other apartments in the area but it seems we are already in the lowest range as far as rent price for a 1BR. And I figure, it will probably cost me more than $600 to move. That’s why I was considering purchasing a condo for now because then our mortgage will definitely be lower than our rent. And it will be 2BR as opposed to the 1BR we are renting.

@Kevin Schaefer I have an agent that sends me an automated email with new listings for multis in Edison, but like you said there’s not a lot. I am open to other areas as well such as Montclair, Bloomfield and Belleville but my agent does not have access to the MLS there. I will definitely start looking for agents in those areas when I sort out my leasing issues as I don’t want to be wasting people’s time.

I would pay the $600 so that you have the flexibility to buy when the right opportunity presents itself. Especially since it does not seem that you can find a cheaper rental. Otherwise you will always feel pressured to make a decision at lease renewal time and you may end up buying something that is not a good fit just because your lease is coming up for renewal again.

You may not be able to find a condo that costs less than your current apartment when u also factor in condo fees, taxes, insurance, and home repairs. The other problem could be that unless your income can support both a condo and a multi family you will need to sell the condo to buy the multi family which could be complicated in regards to timing.

Thank you Amy Beth! I appreciate your advice. I sincerely hope in the future I will also be of help to you. Thanks again!

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