I am currently renting a 1st floor apartment of a 3 family in Bayonne, NJ. My landlord and I have been discussing me purchasing the property from him. There is currently an oil tank which has been abandoned for 30 years according to him. We are working on contacting companies for removal as I will not purchase the house without removal or a clean bill that the soil is not contaminated.
I requested expenses from him to include taxes, insurance expenses, utility expenses (common areas only), and water/sewer. I will then run the numbers through BP calculators. I am wondering if I am missing any expenses to run.
1st floor $1250, 2nd floor $1100, 3rd floor $700
The 2nd floor can realistically get $1350-1400 once I renovated it a bit and $725-750 for attic unit.
I just want to make sure I am going about this the right way and I plan to finance it with as little down as possible. I was originally buying the home for $370k when he had it listed with a realtor some time ago. Now that we would be doing this private I would hope to get the property for 340-350k range. Taxes are just under 10k/year.
I was also considering seller financing, but am not sure of the benefits to that. I will have to do some research on that.
@Chris Daliani when you say purchase the property with as little down as possible are you doing that because that is what you can afford or because you feel it is th best rout to take? I am asking because that likely means you will be purchasing with an FHA loan and FHA tends to be annoying with the PMI. If you are using an FHA loan you may want to reconsider and look into low money down conventional loans. You will not be able to put "the least amount of money down" but you can put down less then 20% (10%) and owner occupy. You will still have PMI but the difference is once you get to 78% equity PMI goes away. FHA you need to refi PMI away and PMI tends be more expensive since less money is being put down. Just something to think about. My apologies if I am completely wrong about you using FHA. Best of luck!
@Shawn M.Thanks for the reply and no need to apologize. I just actually spoke with a lender. I can do 20% down, but after reading on BP I am almost 100% sure I will be doing FHA while having the rents take care of it.
According to lender: Anything under 15% is considered FHA. If you put under 10% (3.5% or 5%) down then you have life long PMI. If you put at least 10% down you will have at minimum 11 years of PMI payments. In this case at a 350k purchase the PMI will be $208/month.
My intentions is to have the advantage of the FHA loan while I will be owner occupying. This way I still have liquid to get the next one which will have to be the 25% down. While it stinks that I have to pay it...I will have 35k still liquid for minor updates and for the next one.
Maybe I am way off on my thinking but from everything I am hearing through BP this is the way to go.
Thanks again Shawn!
@Chris Daliani right now I am approved for 10% down conventional financing for an owner occupied MFR. I will have PMI and it will go away once I reach 78% equity. Speak to some other lenders, shop around. My first purchase was FHA my wife and I ended up selling the property because it really never made sense to refi (the property itself was money pit, hence selling). If we did refi we would have to restart a new loan and the rates would not cut down much on the PMI. What is good about the low money down conventional route is you can lock in a good rate and not have to stress about a refi a few years down the road because the equity will remove the insurance.
@Shawn M. What my lender was saying was the with 10% down the PMI goes away after 11 years...I am assuming that is when the 78% equity will be reached. I think this is what you mean. I get a little confused about the difference between conventional/non conventional and conforming/non-conforming.
@Chris Daliani I intend to renovate the next property I purchase as soon as I get into it with the intentions of increasing the value and equity in the property. If it takes me 11 days or 11 years to reach 78% equity it does not matter the PMI will be gone. You may want to speak with a few lenders just to get an idea of other loan options you are eligible for. Not all lenders carry the same loans. Large banks and in house ( RE agency lenders) lenders tend to cater to single family loans since the vast majority of people buying property are not buying for investment purposes. These lenders may not be the best to consult if you are looking to invest.
When I go to analyze this rental property that I will be owner occupying do I enter my units potential rental income or I leave it at $0?