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

[Brandon Rush]

Hey Milo,

Personally, I don't think its bad that you would be paying market rent. The question is, what are you trying to achieve here? If you are looking to just acquire a property, then this meets your goal. If you are looking to lower your living expenses, then this may not achieve your goal. But, this is a question you have to ask yourself. The benefit of you picking up this property is 1) You are now paying towards a property you own vs a rental (building equity), 2) You have the option of turning down your expenses a little bit if necessary (PM fee, vacancy fee and etc) 3)This is a temporary arrangement as you can up and move somewhere in a year and still have an investment property afterwards vs renting and having nothing after a year occupying the rental. 

For me personally, I would be more concerned about how the property performs once you leave the property. If you are only cash flowing $40-$80, that's risky business on a property that cost you $400k~. If you told me you were going to live there for the next 5 years, then that's a safer bet in my opinion.

Another thing you may want to consider is to turn the other unit into a short term or mid term rental to increase the income and decrease your living expenses. 

Lastly, with the "High Interest Rates", I actually believe now is a great time to buy. I would not say go out and find the most expensive deal on the market. Instead find a property that has a lower price point due to the increased interest rates. Nice thing is, while you will be paying higher interest now (but at a lower purchase price than 6 months ago), when you refinance, the numbers will look even better. Vs, those (including myself) who bought when prices were high at lower interest rates, who will not be refinances for some time. 

Hope that all helps and good luck on locking in your house hack!