FHA [ Looking for opinions on a potential Multifamily deal ] - NJ

[Milo Samec]

Hi all,

I'm a first-time homebuyer residing in Bergen County, NJ. I have been going to open houses and analyzing 2-unit + attic/or basement multi-family properties ($400-$470k) for the past 2 months. I'm looking for opinions on what a "sweet spot" would be for a good deal in your opinion.

For example, properties I'm looking at pass the 1% rule, and 50% rule, and need about $40k in total investment to get market rent for all units - where the house would make 54k per year in rental income, before all expenses (about 50%). It is also cash-flowing $40 every month with all my fees accounted for (5% vacancy, maintenance, and flood insurance set aside as well as 10% set aside for property management, taxes, and home insurance).  I would be living in one of the units and paying market rent ($1750) for that 1 unit to save up for my next investment. 

With these high-interest rates, as first-time home buyers, are we lucky to break even on a deal until we refinance and build equity? 

Is it a bad investment if you have to pay market rent for your apartment even though you have your expenses covered by rent income and cash flow of only $40?

Thanks

[Milo Samec]

Hi @Brandon Rush,

Thank you for your honest opinion and input. I'm trying to get some cash flow from my first property, ideally, at least $200-$300. I know this is not much, but that's the NJ market we live in. This would mean I have to buy a move-in ready Multifamily property for $340~k in NNJ with either a basement or attic rented out - and the chances that I will find a deal like this where I'm looking are very very rare. Also, there are other benefits of acquiring this property, like my fiance doing business from home in a city where most of her clientele lives, so we don't have to rent a commercial property for her needs. This would save us probably $500-$800/mo.

With all these monthly expenses set aside, is it bad to 'massage' the numbers even if I'm willing to manage the property on my own since that alone is 10% of rental income? Having all of these expenses covered and set aside from rental income is nice, but with today's interest rates at 6.5-7 for FHA loans and only a 3.5% down payment, I just don't see the $200-$300 cash flow after all expenses no matter what property I'm looking at. It seems like the only way to turn down all of my expenses is by refinancing in a couple of years and getting rid of the PMI which would probably happen after 8-11 years, or raising rent once in a while.

So I'm trying to see what I can expect with that low of a down payment in the Northern NJ market. I wouldn't want to miss out on properties that work for my needs and that I don't have to put in more than market rent from my pocket. But again, I don't know if an investor/house hacker would consider a deal like this - just because it's not cash-flowing too much today, but has the potential to cash flow in better market conditions.

To your point, I do believe it is the right time to buy as well as in the next couple of months.

Thank you,

Milo.