FHA loan on 2Bed duplex near train to NYC

5 Replies

I am looking for insight on what I think could be a good first deal. The property is 766 audrey Dr rahway NJ if anyone would like to look it up. It is a 2 bed 2 bath duplex in decent condition (based off pictures only). The list price is 154900 and taxes are 4491 according to Redfin. Its been on the market since july. I want to use an FHA loan as I dont have 20% to put down. This means I will be limited to only renting one unit for the first year. I can live with paying a little out of pocket in the first year to cover expenses if it means getting my foot in the real estate door. Rentometer says typical 1 bed 1 bath rents go for around 1500 in the area. Im not sure how reliable this number is, to me it seems high but not sure. I also understand 1 bedroom can be difficult to rent compared to 2 bedroom apartments, but this is a 5 minute drive to the rahway and linden trains to NYC. Does it sound like this could be a profitable rental? I am looking to cover most if not all expenses (taxes, pmi, mortgage etc.) from one unit in the first year. Then rent the other unit out after the FHA living requirement is done.

Howdy @Josh Thompson

From a really basic back of the napkin analysis it looks very good to me. Your projected rental income (without you living there) is almost 2% of Asking price. Using the 50% rule for Cash Flow analysis you are plus $766.50. With you living there it becomes negative (-) $733.50 per month. This is assuming $154,900 is Purchase price, 3.5% ($5,421.50) down payment, $149,478.50 FHA loan amount, 3.5% APR/30 years, $671.23 P&I and $62.28 PMI.

Obviously you need to get more accurate information.  If I were you I would definitely pursue this deal and due more in-depth market research.

Start checking with lenders to get better information on the FHA loan.

Complete your own analysis and post it for review.

Good luck.

Thank you @john leavelle, I thought there was opportunity here. I will get in contact with the listing agent and find out more

Josh,

Are you working with a buyers agent? It may be worth working with one to better understand the neighborhood and project rental income. While I agree with @John Leavelle that the numbers may look attractive, I have serious doubts that a 600sf 1/1 will rent for $1,500/month in Rahway. 

Good luck with the search and I hope I am wrong!

Mark, I agree that $1500 is high. I wouldn’t pay list price for this and need to do more research anyway. I want to get in contact with a buyer agent but found out today (from Bank of America) that I am short on funds for closing costs. I didn’t realize how expensive they were. I’ve always used $2500 as an estimate on the rental calculator but Bank of America estimated $10k. Is it possible to roll any or all of those costs into the loan?

@Josh Thompson

Shop around for lender.  Don’t go with the first one you talk to.  Closing costs can vary.  A few may roll some closing costs into the loan.  I have never done that.  They will for a Refinance loan, but, that’s a different product.  Try to get a breakdown of what might be included so you can compare apples to apples.  I would expect to pay at least $8,000.  I don’t think you will be able to get below $5,000.

Totally agree with @Mark Taliercio .  Rent for that square footage does seem high.  Not my market though.  Try to find comps with similar square footage.

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