3.5% FHA Single Family or House Hack Multi Family..

[Michael Cavitolo]

Hello All! 

What a stressful time it is to be a first time home buyer.. But, Maybe my Fiance' and I are overreacting.. We need some well needed advice! 

Our main goal long term is to have investment properties that cashflow enough for us to retire in the next 10 years. We're both 26 at the moment. We live in Staten Island, New York. We're pre approved for a SF with a price range of $450,000 and under, If we go Multi Family, we're approved for $600,000 and under. Both with the 3.5% FHA Loan. (Hoping we can get moved to conventional..)

We can't find anything remotely close to SF or MF where we live, so we're open to moving to New Jersey while still working on Staten Island. If we go MF, not very good neighborhoods and property needs a good amount of work. If we go SF, then we can find one in a nice area that needs some work and renovate it. 

Here's my issue.. I just don't want to make the wrong decision. I feel like this with market its going to be hard to find a SF that will cash flow if we live in it for 2 years and then decide to rent it out, along with MF. 

I have my fathers pension which will be available to me at the end of the year, should I wait then and get something bigger? 

If we want to strive for this 10 year goal? Is SF doable? Or is MF better? Do you recommend the BRRR? What would you do in a market like this?

Thank you all so much. Just stressful!! 

[Mike D'Arrigo]

@Michael Cavitolo Keep in mind that wealth from real estate doesn't come from just cash flow. There are 4 sources of real estate returns which includes 1. cash flow, 2. appreciation, 3. equity through mortgage paydown and 4. tax benefits. On average, cash flow represents about 1/3 of the returns from these sources. Appreciation is a significant source, even at moderate appreciation rates. With that in mind, properties in not very good neighborhoods, especially MF, will not have the appreciation than those in better areas. 

[Mohammed Rahman]

I couldn't have said it better than @Mike D'Arrigo - @Michael Cavitolo, you're in the right headspace, but as you'll come to learn you won't get 100% of what you're wanting as a first time buyer. You have to decide which facets you're ok with compromising on. Whether that's location, size, MF or SF, etc. is up to both you and your spouse. 

My recommendation is to possibly broaden your search parameter to a bit further from the city. If you're set on finding a MF, a budget of $600k will be tough unless you're really sacrificing on location. 

Alternatively, don't discount the possibility of a SF with possible rental income in the form of a basement room, or separate room rental -- again, it depends on what both of you are ok with compromising on. You may also want to consider a condo/co-op that has lax rental restrictions so you can buy and rent out within a year or two. 

Of course, you could also just wait until the pension kicks in and boosts your purchasing power :) 

[Patrick Drury]

@Michael Cavitolo
If it comes down to picking between multi-family and single-family, I would say, go with the multifamily if you can. I am not familiar with the New York market, but if it's not feasible to invest locally with your price range and you work remotely, I would say look at moving to somewhere where you can get more for your money, like Columbus OH.

[Carlos Ptriawan]

- In my experience, BRRR is always the one that "shapes" your "career and personal development" in Real estate, especially if you are hands-on, it's also the most profitable and riskiest.
- For cash flow, everyone with a good understanding of basic math and who could pay the mortgage, can attain the status of cash flow investors. The rest of problem you will outsource to PM company anyway. 
- Also, to become "cash-flow" investor you don't even need to buy house, just invest to some RE and non-re funds that's safe enough.
- The problem with the Multifamily and SF is the following, both are targetting a bit different tenant quality, even if it's on the same zip code. However, the cost to repair multi-family or single family is relatively the same. If you are new, I guess starting from a single-family is easier. You will potentially see more issues with MF than SF even if both is located on the same class B neighborhood.
- If you're targetting retirement, your focus should be mainly on appreciation and not cash flows. We're on the market where cash flow is less and less. Even appreciation may take longer time now. Except 6-9% IRR.

[Joseph Guzzardi Jr]

@Michael Cavitolo Hey Michael. Fellow Staten Islander here (Live in Annandale). Can definitely understand the stress given this would be your first property and environment we are in. The best thing you can do to guide you is have a solid agent who aligns with your goals, ideally an investing agent, who can guide you along the way. Having key pieces to your team will assist you with the process and minimize the risk for any mistakes. There are plenty of options for you in NJ in the 2-4 unit space.

[Dave Skow]

@Michael Cavitolo- I would recommend focusing on the SFR idea ( either now on a home that will need soem work ) or witing the yr when you might have more funds ..this way you will have 1) have a home 2) have closed a transaction so you will gain experience ...try to avoid using the FHA loan as its costly ( UFMIP and high permanent monthly mtg ins ) ...you should be able to locate a conventional loan program that allows 3% down if you are first time buyers

[Shawn Mcenteer]

@Michael Cavitolo SF is very tough to find with numbers that make sense for long term buy and hold in our market unless you are utilizing a rent by room strategy. Multi Family rentals tend to be a much stronger investment for buy and hold. Low money down conventional is game changer especially in todays market. Just imagine how much additional lending you'll get by eliminating PMI, these lenders are rare to find but they are out there. right now most of my clients are putting down 5-10% with no PMI on owner occupied MFR. We are winning offers below other offer prices just because most sellers would rather not take an fha offer if they can avoid it.

[Kathleen McDowell]

You're getting great advice so far and I will just add a few thoughts:

- assume you're planning to house hack if you go MF. To me this is a great option for young folks with flexible lifestyles

- try going conventional as it is sometimes harder to get FHA offers accepted

- work with your finance to set some goals for what you'd like to get out of your RE goals. Cashflowing properties in better neighborhoods are very hard in today's market and you should be considering other factors such as appreciation.  Retiring in 10 years from RE income may not be a realistic outcome. But if you keep your W2 income and invest your real estate returns into expanding your portfolio, you can build wealth to complement your income.

- the Fed has stated they will continue to raise rates so I would not delay and wait for more income. Sounds like you have done a lot of research and it's time to take action. Get yourself a great buyer's agent who is also an investor and can guide you and reduce the stress!

- BRRR in this market is very risky, especially for a first time investor. Labor shortages and supply chain issues are causing huge overruns and incurring large holding costs. I think would be something that would compound your stress!

- If your local market prices can only afford you something in a less desirable area, consider out of state investing, but be sure to bake in property management costs ~8%.

Best of luck on your RE journey!

[Drew Sygit]

@Michael Cavitolo If you want to "retire" in 10 years, you'll need to think longer term.

Here are your apparent two options:

1) SFR: goal would be to increase value, despite prices leveling for the next 3-5 years. Maybe look at rundown properties and look to use FHA 203(k) to finance repairs into purchase mortgage. 203k will also expand potential properties to include those that can't be financed via conforming mortgage - thus reducing competition.
RESULT: Value increased through sweat equity rehab, you can sell after 2 years to realize $250k (single) tax-free gain. Then reinvest that in next project(s). Could also do a BRRR, but you'd be giving up the tax-free $250k.

2) MFR: goal would be to reposition via rehab and buying in gentrifying neighborhood. Again, can use FHA 203(k) to expand target properties.
RESULT: Value increased via improvements and higher rents. May take 3-5 years for gentrifying, but then you can turn a Class C into a Class B or Class B into A. Could sell for $250k tax-free gain, but may make more sense to do cashout refi for next project, rent out unit you were living in and retain for long-term cashflow and wealth creation.

As always, the most important facet is location, location, location.

[Kenny Guzman]

@Michael Cavitolo My wife and I are actually in a very similar scenario and similar numbers actually. I can understand your stress and truly hope it works out for you! What areas are you guys looking in at the moment? 

[Gary Brodskiy]

@Michael Cavitolo It depends on your investment goals and location. I agree with above posts and some to add:

House hacking is a great investment tool with MF, especially for first-time investors (granted you and fiance are okay living next to tenants). We personally wanted to have our own space for our family.

Sellers are more attracted to conventional loans with more money down than FHA but does not mean it is impossible. It depends on the market you are looking in (ie, where in NJ. It will vary from town to town based on supply and demand)

Determine your RE investment goals with your fiance. Are you looking for cash flowing properties, appreciation, long-term, short-term, etc.?

Determine what retirement means to you and your fiance.

 Link up with an investor friendly agent who can help you find deals that fit your needs. Run the numbers and don't be afraid to trust your gut on when you find the deal to place an offer on. Agents can also be helpful by their network (reliable lenders, inspectors, contractors, property managers, etc).

Nobody has a crystal ball but we do know Fed will raise rates as they believe our "strong economy" can support it and curb inflation. Getting into RE is better sooner than later vs. waiting for more cash. But....do not rush into it. Do your homework.

New Jersey is a hot market especially with recent migrations from New York (as you are thinking decent commuting distance to NY, others did and will as well) but not impossible to find a deal. There are areas in Central Jersey for SF and MF but depends on your goals. Feel free to message me any time if you have any questions.