should i start with a SFH or MFH in central jersey?

Question

After analyzing the local Mercer County market I've noticed there are not that many MFH that are desirable meaning cash flow can occur, but appreciation, schools and good tenants will be at risk. Granted MFH are more common in rougher parts of central jersey and my purchasing power can't acquire me something in North Jersey here homes are much more desirable when it comes to appreciation and schools and safety. In addition, I live with my parents so even househacking will still cost me over $400 a month, which is what I pay to stay with my parents.

My question is should I stick to a SFH in my local market in a good area or South Jersey? My purchasing power can afford me a house down there and I also work in South Jersey (Cherry Hill) and live in central jersey. What's at risk is it may not cash flow and renting is not so common in South Jersey, but I would feel more comfortable investing in a good area where schools are decent to good, and tenants are likely to care more. I would then plan to use this forced equity (since I plan to buy a fixer upper) to invest in another home.

I have been constantly reading to househack right into the MFH, but this may take some time for me to acquire the money and purchasing power. Are there better ways to funding this? The current leverage my family has is their home equity, but I honestly plan to invest within the next year due to capital shortage. I have ALSO heard its not about timing the market rather time IN the market, so this is where a SFH could potentially be "easier" to find.

Im constantly in a headspace where I tell myself I have to get really creative to finance a MFH or come in with a 5% conventional loan and fixing a MFH to force appreciation although cash flow may not be there the first year or two.

Similar with a SFH: I can at least get in the market with a 5% conventional loan not expecting cash flow but hoping appreciation will help me out in the next 2+ years and I will at least be able to put up the remainder of the expenses since I do live with my parents.

I am young so I could be overthinking, but my end goal is to have a portfolio where I can cash flow enough within the next 5-15 years to let go of my job (5k clean a month). Im 23 and will continue to work until 30-35, and by then I would be able to either continue working BY CHOICE rather by necessity.

Mike Teri · Answer

Hi Ashley, fellow New Jerseyan here.

I want to address a couple of your assumptions here, especially as they pertain to the CNJ/SNJ market:

1) Rentals are in huge demand everywhere in NJ. To quote Field of Dreams, "If you build it, they will come". Even in South Jersey, where the purchase prices are lower, there is a silent pool of tenants waiting to be able to afford a place to live that may not qualify for a mortgage. If you want proof of this, look at every Section 8 waiting list in the areas you are considering. I'm not saying that you should consider renting to Section 8, but just to show you that the demand is there even if there are very few MFHs showing up on the market as available for purchase/rent. Always make sure to adequately screen your tenants (background check, income verification, credit report, etc).

2) In the context of House Hacking, with a SFH are you considering renting out by the room? This is a very different way of life than renting out by the unit. Renting by the room would increase your rental income, but you may sacrifice in your own quality of life having to manage so many tenants. If you are comfortable with renting by the room, check the local municipality laws in the areas you are considering to make sure there are no restrictive laws about operating boarding houses. There are a lot of posts on BP about how to navigate rent-by-the-room investments, and these are more commonly allowed in South Jersey than in Central Jersey.

3) House hacking and cash flow do not coexist in NJ in today's market. You can house hack and reduce your expenses, or you can (try to) cash flow by not living in the property. But you can't do both. If your goal is to house-hack short term, and you want to make sure the property will cash flow when you move out, that's understandable and there are ways to do this with forced appreciation or by buying in a higher-risk, up-and-coming market. But house-hacking will cost you money, not make you money. And it will definitely be more than $400/mo!

4) MFH financing has the same product options as SFH financing for owner occupants. You can qualify for FHA loans (3.5% down) for up to 4 units, as of the last time I checked. There are products out there that allow you to use a property's current rents as income if you are acquiring a property that has tenants with leases already in place, and this would help your purchasing power. I would recommend reaching out to a few local loan shops, and highly recommend credit unions in today's rate climate, to see what products are right for you. I do not recommend pulling a home equity loan as a first time investor if you are buying a fixer-upper, the current rate environment is not favorable for rehab projects that run way past their scheduled timeline and you don't want to run into a situation where your family can't meet loan payments while your house is securing the loan.

Hope this helps, I'm happy to share my experiences investing in NJ if you have any questions.

Good luck!

Wale Lawal · Answer

@Ashley Guerra

To build a profitable portfolio in South Jersey, choose a single-family house (SFH) approach with closeness to schools and safer areas, or a multi-family home (MFH) strategy using FHA loans, seller financing, partnerships, or responsible leverage of family home equity. Market timing, due diligence, and long-term planning should include a 10-year goal of earning $5,000 per month in cash flow within 5-15 years. Financial evaluation, property search, networking, and education are all actionable measures.

Good luck!

Derek Brickley · Answer

Hey Ashley!  I got into a househack last year at 23 so it's definitely something to consider.  My take: Single family will always have more appreciation potential and might have less maintenance.  Multifamily is great for spreading out capital expenditures between mulitple units and living for less out of pocket each month.

What I did: Purchase a duplex -> force equity with repairs -> increase rent to make more cashflow -> refinance based on the increased value and lower my payments

Basically a BRRRR except as a primary residence there wasn't all that much cash put in so I only got $7k back out.  I used the 5% conventional and especially if you're looking to build equity there will be benefits to doing so.

Alecia Loveless · Answer

@Ashley Guerra Not that familiar with your market but the one thing you can’t change about a property is its location.

I’ve found that by investing in better locations I tend to get better tenants and a larger tenant pool.

My latest and nicest building is in the bottom 2 towns in my area in terms of services and overall location.

While I have been able to find tenants to rent at a slightly premium price as the building warrants it has been more challenging and taken longer than my buildings in better areas.

Nicholas Coulter · Answer

Ashley have you connected with a local investor/agent? I find agents who are also investors are the best guide for learning and developing a strategy to buy.

should i start with a SFH or MFH in central jersey?

should i start with a SFH or MFH in central jersey?

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