Hi all! I am new to this group so thank you all for the incredible information and advice.
My question: My lease is coming up in August in Hoboken, and my gf and I would like to build equity in a place where we can rent out a portion of a multifamily building. Places in NYC/Jersey (Jersey City) run $500k and higher, and taking a $475k mortgage at 5% down First-Time Home Buyer loan seems risky despite cash flow from another unit or two reducing expenses. I never know if there is going to be further layoffs, so what would you guys do? House hack? Continue to rent and try (learning and executing) BRRRR with a partner? Continue to save fore more money down?
Great question. Everything in life entails risks and costs (whether actual or "opportunity"). If you keep renting, you'll be on the hook for the rent you owe, even if you were to lose your job (a lease is a legally binding agreement). So my question to you would be: If you could buy a multi-family property, whereby, you can lower your monthly net housing cost to less than your current rent, is that less risky or more risky that maintaining the status quo (in your case continuing to pay rent to your landlord)? Especially when the cost of borrowing right now is so low.
You can put down as low as 3.5% for a primary residence with an FHA loan. Of course, you'd also need 13k to 15k in total closing costs in NJ, but some lenders may be able to roll some or all of that into your loan amount.
To me, the benefits of locking in a 30yr mortgage at historically low levels on a multi-family property are too great to ignore right now. You lock in a fixed and very low cost of debt, while benefiting the the numerous advantages of real estate ownership (especially when house-hacking). Namely:
- Building equity from annual principal paydown (funded partly or fully by your rental income) and long-term property value appreciation (we know that in the long run, real estate values rise, partly due to inflation).
- Rising rental income (rents rise over time as well).
- Tax advantages (plenty of resources online about this topic).
- Experience, both as a property owner and as a landlord.
Regardless of what’s going on right now, if my job was secure and if I had the money for DP then I’d be house hacking all day every day. Of course you gotta go with the numbers and make sure you buy right but if you can direct the money that you’re paying for rent towards building equity on a property, that would make sense for your long term wealth building. My two cents.
Great question. Everything in life entails risks and costs (whether actual or "opportunity"). If you keep renting, you'll be on the hook for the rent you owe, even if you were to lose your job (a lease is a legally binding agreement). So my question to you would be: If you could buy a multi-family property, whereby, you can lower your monthly net housing cost to less than your current rent, is that less risky or more risky that maintaining the status quo (in your case continuing to pay rent to your landlord)? Especially when the cost of borrowing right now is so low.
You can put down as low as 3.5% for a primary residence with an FHA loan. Of course, you'd also need 13k to 15k in total closing costs in NJ, but some lenders may be able to roll some or all of that into your loan amount.
To me, the benefits of locking in a 30yr mortgage at historically low levels on a multi-family property are too great to ignore right now. You lock in a fixed and very low cost of debt, while benefiting the the numerous advantages of real estate ownership (especially when house-hacking). Namely:
- Building equity from annual principal paydown (funded partly or fully by your rental income) and long-term property value appreciation (we know that in the long run, real estate values rise, partly due to inflation).
- Rising rental income (rents rise over time as well).
- Tax advantages (plenty of resources online about this topic).
- Experience, both as a property owner and as a landlord.
I agree with @Max Vishnev on this. I would take advantage of the low down payment for an owner-occupied residence. You will be able to build equity, hopefully benefit from home appreciation, enjoy tax benefits and not have to pay rent.
If you buy a 3-4 unit with an FHA loan, you can put 3.5% down. You can also get up to 6% of the purchase price back as a closing credit from the seller to help pay for closing costs and keep your out of pocket cost low. I would start looking at opportunities.
Thanks guys, all extremely helpful. I am strongly considering the house hacking case on 3.5% down, just wondering about the possibility of longer term headwinds for the greater-NYC market if there could be a combination of
1. higher taxes after Covid to pay for state expenses
2. demographic exodus in favor for lower tax jurisdictions, better weather, work from home permanence, etc.
2.a. much of the office space in New York could become converted to residence and a supply glut
Just some ideas, but let me know your thoughts if this is overblown concerns or valid.
I think all three options are good. I love the concept of house hacking but not if you have to buy a bad deal to do it. I think continuing to save capital and partnering up with someone else to buy a larger deal is a good play.
My best advice is to get away from jersey City. Go a little further south in jersey to find the deals. Alot of the old timers already own the cashflowing deals in cities in North Jersey and bought way back when it was cheaper now they're sitting on paid off cashcows so they'll never sell even if they paid a 1/4 of what it's worth today. Plus anywhere in north jersey the taxes are out of this world killing any potential cashflow.
Alot less stress further away from the city too. Always say that north jersey is home of the rat race.
Thanks Brock and George--I appreciate the help. That is what I was leaning towards. There may be some deals if forbearance ends and unemployment doesn't get extended, but I am too negative on the possibility of higher taxes and migration south to allocated my first major mortgage to Jersey City/Hoboken/Edgewater. I am thinking more towards BRRRR with a partner further down on the Atlantic Seaboard to capture the WFH-lower tax tailwind. I may be completely wrong though.