Closed on a $1,446,000 fourplex with 3.5% down via FHA / 203k!

24 Replies

Location: Jersey City, NJ

Property Type: Fourplex gut renovation, financed with a 203k loan

Purchase price: $999,000

Renovation amount: $460,000

ARV: $1,500,000

Projected rental income: $10k/mo

Annual income: $120,000

Net Operating Income: $69,500 (5% vacancy / CapEx / R&M, 10% property management)

Unlevered Yield on Cost: 4.63%

Annual Cash Flow: (12,028)

I'll be in the red from a cash flow perspective early, but I am still super stoked about the deal. 20 minutes from Manhattan in Downtown Jersey City, a rapidly appreciating part of the city that feels similar to Brooklyn.

Really trying to take advantage of the FHA loan by levering up to a $1.45mm loan (which is within $30k of max loan amount). Debt paydown will be $33k+ in year one and any appreciation on a $1.5mm base is big $$$.

More detail can be found in my Twitter thread on the deal:

https://twitter.com/twbuilds/status/1332807426056335366?s=20

Congrats.  If you normalized the cash flow for a standard down payment and rent from the unit that you will occupy, it would look even better.

Why buy and take on the hassle and the risk of a half million dollar renovation project when the ARV is equal to the cost of the property and rehab? Why not just buy a renovated property for $1.5 million?

@Tom Wagner

Hi Tom I'm local to the area as well. The puchase/rehab numbers you layed out with the ARV you mentioned seems very very tight. I know your betting on appreciation. Just keep in mind that New Jersey property taxes can swing on you in a heart beat once you complete this $460k renovation.

If you want to chat feel free to PM me.

Good luck

@Tom Wagner - Good stuff! Now you should wait a year, refinance via a commercial loan (higher rate and 75% LTV but housed in an LLC and separate from you). I suspect it will appraise for $1.75 mm letting you get most of your equity out.

Then consider redeploying via another FHA. I'd recommend looking into areas that are currently "on sale" and are poised to let you create a lot of equity in coming years in New York City.

@Tom Wagner Outstanding! As a true believer in the power of buying multifamily with a 203k loan, I love to see examples of this getting done! So many ppl are either mystified or afraid of this loan product. But with an organized approach and some preparation on the front end, it's a powerful tool to grow your portfolio with little skin in the game. Cheers!!!

Awesome. These bigger properties are what I prefer 500k-1.5 mil you get the best cashflows which a lot of newer investors don't realize and the tenants are great which results in much lower % operating fees. I have a 4 unit in a higher cost neighborhood and it kicks off 1.6k a month after conservative expense averaging. 

@Tom Wagner How did you get FHA for 1.5 million? Must be in high priced area with different FHA caps? Our limits do not allow to get that high in IL. Or did you do a second mortgage type setup?

Originally posted by @Mike Dymski :

Congrats.  If you normalized the cash flow for a standard down payment and rent from the unit that you will occupy, it would look even better.

Why buy and take on the hassle and the risk of a half million dollar renovation project when the ARV is equal to the cost of the property and rehab? Why not just buy a renovated property for $1.5 million?

While it is more complicated than this, the main reason is that a turn key property like this below the FHA max loan amount does not exist in my area. I suppose that could mean my ARV is actually higher than $1.5mm.

And I wanted as *big* of loan/ARV as possible because I wanted to maximize the appreciation base. $1mm appreciating at 2%/yr is $20k, while $1.5m appreciating at 2%/yr is $30k.

For me, it’s more than just cash flow.

Cash flow + appreciation + debt pay down + tax benefits = NWROI (Net Worth ROI)

Originally posted by @Joe Edwards :

@Tom Wagner

Hi Tom I'm local to the area as well. The puchase/rehab numbers you layed out with the ARV you mentioned seems very very tight. I know your betting on appreciation. Just keep in mind that New Jersey property taxes can swing on you in a heart beat once you complete this $460k renovation.

If you want to chat feel free to PM me.

Good luck

 Hi Joe! Thanks for the note and definitely agree. I’ve run the numbers using the forecasted new tax valuation and am hoping to take advantage of a five-year tax abatement.

Where in NJ are you investing and what are you investing in?

Originally posted by @Henry Lazerow :

Awesome. These bigger properties are what I prefer 500k-1.5 mil you get the best cashflows which a lot of newer investors don't realize and the tenants are great which results in much lower % operating fees. I have a 4 unit in a higher cost neighborhood and it kicks off 1.6k a month after conservative expense averaging. 

@Tom Wagner How did you get FHA for 1.5 million? Must be in high priced area with different FHA caps? Our limits do not allow to get that high in IL. Or did you do a second mortgage type setup?

Yep, high COL area! In NYC metro (and other expensive areas, San Francisco, Los Angeles, Boston, etc.) the max for a fourplex is $1,472,550.

Originally posted by @J Morel :

@Tom Wagner Congrats, Exciting stuff. Can you provide the bank you are working with? I'm looking to do similar deals in the Bergen/Hudson area as well.

Sure! I worked with Scott Saypol at Loan Depot and had a good experience. I’d also take a hard look at Jeff Onofrio and Bill/Melissa Grath.

 

Would love to see/have a link to your pro-forma. How did you estimate repairs for this and also your utility bills? I'm just about to close on a duplex here in Ohio. Keep grinding!

Originally posted by @Stephen Brown :

Would love to see/have a link to your pro-forma. How did you estimate repairs for this and also your utility bills? I'm just about to close on a duplex here in Ohio. Keep grinding!

The pro forma is just an estimate until I have tenants in there and get the building stabilized. I've underwritten 5% of annual rental income for repairs and 5% for maintenance, so $12,000 total. I am hopeful that this number is much higher than what actual expenses will be for the first 5-7 years, because almost everything in the property will be new: new roof, new plumbing, new electrical, new appliances, new kitchens, new bathrooms, etc.

Generally, I've seen people use 10% of rental income as a hand-wavy estimate for ongoing expenses, though on older homes you may want to increase that to 12-14%.

 

Originally posted by @Eric June :

This is amazing. Congrats!  Reading your Twitter feed as I write this.

Thanks Eric, really appreciate it! Feel free to reach out on here or on Twitter if you have any questions.