Brand new south jersey/philadelphia investor

7 Replies

Good evening Bigger Pockets community, Thanks for reading. I currently work as a realtor in the south jersey area (as a side job). However, I am looking to start investing my commissions in rental properties, or flipping properties. I am young (22) with some decent capital saved up. But not nearly enough to buy cash. Is starting off with having a mortgage a bad idea? Can anyone recommend any good rental market areas in philly and/or south jersey? Ideally I am looking for some advice to a brand new investor on some things you wish you did starting out. Thanks everyone, Steve

Welcome to BP @Steve Novosel ! Starting off with a mortgage at the young age of 22 is a great idea, as long as your property still positively cash flows. There are many advantages to having one. Here are a few examples:

1. Tax write offs for interest, which at the beginning, is most of your mortgage payment.

2. The ability to exploit the time value of money.

3. Leaving yourself capital (that you would have otherwise used to buy in cash) to purchase additional cash flowing properties.

Regarding rental areas, it really depends what you are seeking. South Jersey is tough because of the high taxes. That being said, areas along the PATCO Speedline have a strong demand for renters and the best potential for appreciation. Philadelphia generally has lower property taxes than South Jersey, but you will pay a 4% wage tax on any income you are unable to write off. If you are mostly concerned about cash flow, certain areas of Delaware might be your best bet, because of their lower taxes.

@Steve Novosel - Welcome to BP. 

I echo what @Rick C. said. Philly is competitive, but lots more options and the math can usually work out more in your favor. Most of the deals in South Jersey are not on the MLS. Consider finding a wholesaler to work with who is doing a lot of marketing for properties not listed. Also Delaware is a great place for cash flow, that's where I'm personally focusing on acquiring rentals.

Welcome to BP Steve Novosel !! If you aren't already familiar with 203k FHA loans I would highly recommend looking them. This loan would allow you to put 3.5% down and wrap repair costs into the mortgage. That way you can hold onto a maximum amount of your cash for your next venture while having the lender bankroll your rehab. You can do so in up to a 4 unit property. If you buy right and build equity through an effective rehab, you could then refinance into a conventional loan extracting any equity beyond that needed to maintain 80% LTV (no more PMI). Get the unit fully occupied then find another property and repeat.

@Mathew Gunkel - Agreed on 203k loan being a great opportunity but correct me if I am wrong, this program does require that the owner live in 1 of the 4~ units correct? If so, for how long is that owner-occupancy requried? How likely is it that the FHA authorities check to see if it is in fact owner occupied? Wondering if this could be an option for an out of state investor such as myself buying in Philadelphia.

@James Masotti - Would love to hear more about your investing in Delaware. Are you buying multi-families there? What are the price ranges like for 1-4 units and subsequent rent rolls? What is the general economy like in Delaware in order to gauge tenant profiles? GDP, household income, unemployment rates etc?

Hey Steve ! I'm also new and in the area. I'm currently looking into HML's for my ventures that I will beginning late this year or early '16. I have cash as well, but like others mentioned, I really hate tying up liquid capital, and due to the quick lead times with some hard-money loans I really feel like that can be a great aid in times in need. I'm still doing a ton of research which is why I haven't posted my intro post yet but I definitely wanted to stop in and say something.

Originally posted by @Pierre Streat :

@Mathew Gunkel - Agreed on 203k loan being a great opportunity but correct me if I am wrong, this program does require that the owner live in 1 of the 4~ units correct? If so, for how long is that owner-occupancy requried? How likely is it that the FHA authorities check to see if it is in fact owner occupied? Wondering if this could be an option for an out of state investor such as myself buying in Philadelphia.

@James Masotti - Would love to hear more about your investing in Delaware. Are you buying multi-families there? What are the price ranges like for 1-4 units and subsequent rent rolls? What is the general economy like in Delaware in order to gauge tenant profiles? GDP, household income, unemployment rates etc?

FHA 203k loans do require owner occupancy, and the time commitment for occupying the property is 1 year. It could be possible to vacate earlier IF something monumental has happened in your life, such as termination of employment, but this is something you would 100% want to discuss with your lender.

-James

Originally posted by @Pierre Streat :

@Mathew Gunkel - Agreed on 203k loan being a great opportunity but correct me if I am wrong, this program does require that the owner live in 1 of the 4~ units correct? If so, for how long is that owner-occupancy requried? How likely is it that the FHA authorities check to see if it is in fact owner occupied? Wondering if this could be an option for an out of state investor such as myself buying in Philadelphia.

@James Masotti - Would love to hear more about your investing in Delaware. Are you buying multi-families there? What are the price ranges like for 1-4 units and subsequent rent rolls? What is the general economy like in Delaware in order to gauge tenant profiles? GDP, household income, unemployment rates etc?

A huge part of what makes Delaware attractive to me is the property taxes and reasonable home prices. For example - you could find a 3 bedroom single family home that will rent for 900-1100 a month for $60k-$70k on the MLS (if you do marketing or buy from a wholesaler you can do much better $10k-$40k). Taxes of $500-$1500 a year. The general economy in Delaware is very bifurcated. You get the people that live in very expensive areas because they work for the banks and law firms in Wilmington, You also have a lot of nicer areas around UDel in Newark. There's a handful of manufacturing companies that have corporate headquarters or plants in the area as well, there's also some decent logistics infrastructure in place which makes for a very solid blue collar community as well. All this equates to an economy that basically stays flat to slow growth. Some of the better markets have good appreciation, others have none. Rents and tenant base are pretty stable (based on my experience of having one property and talking with my realtor and property manager and other investors), so you'll have good cash flow if you buy right.

Hopefully that helps paint a good picture for you. 

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