Rental Property Investor · Green Bay · Member since 2020 · 30 posts · 15 votes
6y
NJ is a tough market. Have you considered finding another area to farm? I would at least do these numbers as if you are NOT an owner-occupier, even if you plan on house hacking
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
This is my very first deal! I am house hacking! 1 room rented for 850, the other for 950. Utilities I cover. I put 40k down, 315k purchase price, 2.235% interest fixed FHA. NJ is super expensive and I know this may not have been the best deal? Especially since taxes here are extremely expensive. However, in COVID season, every deal pops up and its gone the very next day. I've been looking in this area for 4 months straight and thats what I've seen. I know its -650 cashflow but doesnt account for me living free. Also I am in a masters program at Montclair State university for software engineering so I figured, instead of paying someone else rent, the faster I get a property, the faster I wont be paying high rents near montclair. This is the mentality I was thinking when I bought this. I am currently in the process of setting up escrow accounts for the security deposits for my tenants. Learning a lot of new things I didn't know before. Apparently Chase bank makes you bring a signed lease + their w9 to open an escrow account for security deposit. This doesnt make any sense because I want to collect security deposit before signing the lease haha. Anyway I found that TD does it without signed lease if anyone was curious. I also found that one of my tenants, parents is from another state while he continues education at Montclair. Best way to prevent his dad from getting charged through wiring from different banks is using Zelle. The 4 biggest banks use it. Its instant rent payment and no fees attached. I havent used it yet, but from what I've inquired from different banks, that seems to be the best thing to use. Let me know if you guys have any tips, or any ideas of what I should do next. I'm still new, and love criticism as long as I'm learning from it!! Thanks!
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
I just realized I made a mistake on the calculator. I purchased it at 315k purchase price, and 40k (10k closing, 25k down, 5k PMI). Trying to figure out how to make edits to it. ANyways my monthly payment is 2148 mortgage PITI, and my loan is 289k.
Rental Property Investor · Green Bay · Member since 2020 · 30 posts · 15 votes
6y
NJ is a tough market. Have you considered finding another area to farm? I would at least do these numbers as if you are NOT an owner-occupier, even if you plan on house hacking
Contractor · Milwaukee, WI · Member since 2016 · 142 posts · 52 votes
6y
@Shivam Patel First, let me say congratulations on starting down the journey with a house hack, great way to get the ball rolling.
I would say, your reserves look sort of low, unless the property is completely new. My water/sewer usually runs about 225 for our lower unit of a duplex. I'm not sure how you're splitting it up with roommates but that seems low.
I'm not sure what market rents are out there, but based on this $900/bedroom, you're only saving 300 (900-600 negative cf) per month by house hacking. Is there any way to do a value add, you mentioned the basement. is there any living space down there? I understand that NJ is a tough market and its an improvement from renting a room and building no equity. This looks like its just going to be a long term hold kind of thing!
Contractor · Milwaukee, WI · Member since 2016 · 142 posts · 52 votes
6y
I would agree W/ Red Smith, is this a deal you would buy after you finished house hacking ? or does it only make sense to decrease your living expense?
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
@Red Smith Yeah, I've considered it but I cant do it while I'm in school fulltime and working fulltime, I figured something close to free rent temporarily would be best. But you better believe, As soon as school is done haha, I'll be able to move around more.
@Tyler Mutch Yeah, so The basement isnt finished, and I don't think i will be finishing it, only because I feel like if I pour money into it, i don't plan on holding it long term. Its an older property. I'm 40k cash all in, so as long as I recuperate enough for Its just a temporary way of offsetting my expenses in living costs. Once school is done, I'm going to try and 1031 into a 4plex in PA where taxes are lower. The hardest part is 800 bucks in taxes in NJ which absolutely kills. As for value add, I have a huge backyard, probably the biggest in the town. and I'm a block away from walmart, and downtown so the location is good. I'm wondering if i could land partition and have a builder build there because technically its still in residential so it should be zoned for residential. The water/sewer I get a bill quarterly so I havent recieved anything yet, similarly for the other utilities. Its just an estamate because I only moved in a week ago. I will be paying all utilities.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
I should mention I will 100% not be living here after 1 year (only for the FHA rules). I work all the way in Philadelphia currently which is a 2hr drive (100miles) 1 way, 4 days a week 10hr shift. And I have school in Montclair over here 2 days a week (3hr class, for 2 classes). I'm almost driving back and forth like 500miles a week, which is killing my soul haha.
Contractor · Milwaukee, WI · Member since 2016 · 142 posts · 52 votes
6y
I would forsake make that call to the city, and see if you can get your lot partitioned off. I would imagine that the value of that land would be more than 40k and would allow you to get all you cash out, plus a little more. That would be an awesome value add. So you're not going to hold this long term? I would at least consider it, especially if you can get all your cash out with zero into the deal and 2700/month it should be a decent deal.
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
My exit strategy I can go a couple ways. So worst case scenario is hold and house hack then cash out refi at 80 LTV and purchase another property (triplex or fourplex). Sell after 2 years to avoid capital gains.
Option 2: I plan on 1031 into a 4plex or triplex. Preferably 4plex and house hack again but 1031 into outside NJ, maybe PA. This will be after 1 year. I'll be able not not pay capital gains.
option 3. Partition the lot, and sell the lot. Ideally I want to get rid of the property though since it's built in 1890. The founding structure makes me nervous haha.
Nashua, NH · Member since 2017 · 66 posts · 58 votes
6y
@Shivam Patel
Sell after two years? Would you make enough to cover the fees? You seem in a huge hurry. If you are not ready to stay there five years I would pass on a single family unless it has really good cash flow. Is that interest rate correct?
The way that I analyzed my house-hack duplex was with the income and expenses for after I would have moved out, because I don't plan to house-hack and live in the property forever.
I like to use the assumptions of 8% to be conservative for each assumption: Vacancy, Repairs, CapEx, and Property Management (even though I self-manage now but as I grow I plan to use a PM). It looks like you may not have accounted for Property Management - do you plan to manage this yourself, forever, or until you someday sell it?
edit: Do you plan on doing by-the-room rentals with the property indefinitely? If not, how much rent will you be able to get for the property if you rented to a family? How much better/worse would that then make your cash flow calculation?
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
@Brian Hamel If it appreciates at 2% rate in the next 2 years and I sell i should make it back. It also got appraised for 10k more that what I paid for. But I'd prefer to 1031 into a multifamily. New Jersey doesnt have the 2% rule apply, its less than 1% most of the time for SFH. If I can, I would rather 1031 into multifamily in PA because the taxes are wayyyy less and it might actually apply.
@Bradley Bailey So If I move out, I can break even until I refinance. One thing that bothers me is the house was built in 1890s and I'm concerned about holding onto something old like that. I'm not a flipper by any means so I don't know the ins and outs of foundation and framework if it needs to replaced every now and then. The taxes alone are like $850 for the property so it didnt leave me much room for vacancy/repairs/capex/property management. I also heard the property managers in that area aren't too great, so I'm managing it myself for now, until i develop relationships with good property managers. I don't think I'll do it indefinately for rent by the room, only because Family demographics tend to stay longer. Right now its easy for me to rent by the room because I'm house hacking and no family wants their landlord living with them. The previous owner I believe rented to a family for 2300ish before I bought it. Right now I'm renting the largest room for 950, the second largest for 850, and If i gave my room up I could prolly squeeze 750-800 by the room. However, that will be a lot harder to get with 3 strangers in.
Rental Property Investor · Scarborough, ME · Member since 2018 · 4 posts · 2 votes
6y
@Shivam Patel So you think currently the max gross rents for by the room rentals is $2,600 (950+850+800) if you were to move out vs $2300 to a family? I'd try and stick with by the room as long as you can handle managing it otherwise you'll drive that cash flow down even further if you've moved out.
I think 10% for Repairs and CapEx on a home that's 130 years old is definitely on the low side for my comfort level. That said, I may not be the best to say as I've only got 2 units currently. $20/month for Water and Sewer is likely too low as well, just noticed that, unless you're somehow splitting it with your two roommates, but even $60/month seems low for 3 people. How long have you been living here? I'd get this report updated once you have a better idea of actual averages (apologies if this is using actuals and kudos on getting that bill so low) so that you have a better idea of your "real/actual" cash flow over an estimated.
I'm frankly not sure which of your exit strategies I'd consider as I have no experience sell-side. I hope that you figure out something that works to your advantage! I think the idea of partitioning the lot is creative and a bonus if it helps with having less cash in the deal!
Rental Property Investor · Clementon. NJ · Member since 2019 · 116 posts · 25 votes
6y
So I haven't actually gotten my first bill in yet. I've been there about 1-2 weeks. I'll update it once I get my first bill. I think investing in New Jersey is incredibly hard. Yeah I'm getting an incredible rate of 2.235% and APR is around 3.33%. BUT the rents is kind of hard to make a decent amount in NJ because I have no room for CAPX or PM. I think my next strategy is to move out to PA, DE, or NY. It'll be so much easier to invest when I know rent/ expense ratio is a lot higher. For now I'm kind of forced to be in the state because of school. Once thats done, I'll be able to be able to move around more. I'm also moving into data analyst role so Itll all be remote.