NJ Couple: Small business owners looking for general advice

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NJ Couple: Small business owners looking for general advice

Michael Rivera
Investor · Northern New Jersey · Member since 2018 · 5 posts · 2 votes

Hello everyone, Mike and Sarah here!

We currently rent in Belleville, NJ, and have an established owner-operated Pet grooming and daycare business, a bit further south in the Union County area. We have been working together the past 3 years, and for the past year or so, we have been phasing out of our mid-twenties bad habits, and becoming more preoccupied with our futures. 

One of our regular clients heard that we were listening to some finance podcasts, and recommended we listen to Bigger Pockets. Since then, our life has never the been the same. We began budgeting, paying off debts, working harder, and overall becoming more financially responsible.

We want to get out of NJ, but we are aware that we have a cash flowing business, and have made many connections over the years that can prove to be beneficial to us if we were to invest in NJ. We are excited, and eager to use the BRRR method to begin building a portfolio of 2-3 family homes. I would like to at some point scale up, but for now, we're more preoccupied with getting started.

We have traveled to Denver and Seattle for our last 2 vacations, and are convinced we belong out west. We want to use real estate to get us in a position to move comfortably. 

My conversation starting question for you guys would be....

Would the first move for financing be going straight to a bank for a low money down FHA loan? Or should we go straight to an investor for a harder money investment first?

Pleasure to finally be a part of a community that I actually look forward to hearing from!

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Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
7y

Depends on your creditworthiness, income, etc. I would always suggest a conventional bank if you qualify because the interest rate and terms on hard money loans, which are often short term, are usually not nearly as favorable. That being said, the qualification process is usually easier. There are absolutely times when hard money is a blessing, but I'd try the conventional way first.

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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    7y

    Depends on your creditworthiness, income, etc. I would always suggest a conventional bank if you qualify because the interest rate and terms on hard money loans, which are often short term, are usually not nearly as favorable. That being said, the qualification process is usually easier. There are absolutely times when hard money is a blessing, but I'd try the conventional way first.

    1Reply
  • Michael Rivera
    OP
    Investor · Northern New Jersey · Member since 2018 · 5 posts · 2 votes
    7y
    @Jessica Zolotorofe thanks for replying! Yeah we spoke over wine last night and realized that the hard money would be saved for later investments. We are currently gathering the paperwork we need to see how we look with an FHA loan. The wife wants to put 3.5 down and I’m voting more towards 10% on a multi family (under 4 family from what I understand) as we would much rather not have the MIP incorporated in the loan payment forever. It would probably mean having a little bit less cash for a light rehab, but I’d rather have a smaller monthly on the loan. Hope our strategy isn’t flawed!
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  • Jessica Zolotorofe
    Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
    7y

    Sounds good to me. Best of luck!

    1Reply
  • Cody Z.
    Real Estate Agent · Belmar, NJ · Member since 2017 · 370 posts · 200 votes
    7y

    @Michael Rivera

    Welcome to you both! I think an FHA or a conventional would be a decent start for you both. A couple of thoughts that come to mind when looking at your story

    1.) FHA is a great tool but keep in mind that depending on how hot your market is, it may be a disadvantage as the closing process may take longer due to government intervention - First Look by Fannie Mae would be a great path to go if you want to use the FHA product and would give you a greater advantage with the non-investor grace period.

    2.) If you're cash light, consider using 0% credit cards to cover rehab costs in the short term. Some people will shake their heads and say never use a credit card - I disagree. Credit is a tool that, if treated with respect, can be very powerful when used properly with a plan.

    3.) Possibly determining what your end market will be and purchasing a turn key or light rehab out of state in that market. The benefit it seems for you two is that both spouses have the same goal and preference for geography so it would be much easier to pick a new market that you both could build a portfolio in and start to enjoy some of the benefits of real estate.

    Good luck to you both and keep everyone posted on your success!

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  • Michael Rivera
    OP
    Investor · Northern New Jersey · Member since 2018 · 5 posts · 2 votes
    7y
    @Cody Z. Thank you for the informative warm welcome! I’d love to touch base on the topics you brought up 1- first time hearing about the First Look, I will definitely do some research on it tonight as I would love to know every angle of approach. 2- i too have no issue using cards to my benefit. I feel like some people steer clear of cards due to past trauma, I enjoy card hacking and reaping benefits offered by cards. Currently don’t have balances on any of my cards so that will definitely be an option come rehab time 3- we would love to end up in the PNW, so a property out there would be wonderful to get into. I don’t think I’ll purchase out west first, I’ll leave it for my 2nd as I want to continue visiting and making connections via friends/family/BP, to build a team I can trust before actually taking the plunge and relocating. I appreciate you taking the time out to educate! This is all reassuring info, and We’re super excites and ready to get our first deal under our belt!
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  • Cody Z.
    Real Estate Agent · Belmar, NJ · Member since 2017 · 370 posts · 200 votes
    7y

    @Michael Rivera 

    I'm glad you found the information helpful. Feel free to PM me if you have any other questions.

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  • Christopher Foote
    Lender · Boston, MA · Member since 2018 · 22 posts · 17 votes
    7y
    @Michael Rivera Couple of things for you here. You are going to have mortgage insurance if you are putting down less than 20%. I would not get overly concerned about the MIP factor in FHA. You may also want to look at the FHA 203K which is a rehab product. FHA will provide dollars for repaIrs and still minimize your down payment. Because it is FHA insured they may have some required repairs (usually structural or safety related). It is a good option for an owner occupied multi family and may give you the opportunity to build some instant equity. Try to find a renovation expert at one of the mortgage companies that specializes in this loan program. Expect to pay a 1/4 to 1/2 % higher than a regular fha loan. If you go this route you may find yourself with a 20% equity position in the property within a year or 2, then you could refinance out of the loan and eliminate mortgage insurance.
    1Reply
  • Michael Rivera
    OP
    Investor · Northern New Jersey · Member since 2018 · 5 posts · 2 votes
    7y
    @Christopher Foote thanks Chris, I like the sound of this idea. So in theory I can use the FHA 203k to acquire the property with 3.5% down, I’ll have a bit more of an interest rate, but they’ll sweeten the deal by financing the rehab on critical repairs? And the equity gained would be acquired through added value post rehab?
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