All Forum Posts by: Ryan B.

Look into House Hacking a small multifamily. I hear that Union City is a viable market. Jersey City, Newark, Bloomfield, The Oranges, Montclair, Morristown...

All three of these are already widely held views that (prior to COVID-19, least) were a lot more top-of-mind than cancelling rent.

Seems like quite a good deal to me, if her numbers are actually accurate.

Her rent number is suspiciously high. I assume that's an estimate of what she'll be getting after the $200k in renovations...? If so, what's she getting in rent currently? I don't know where this property is located, and that's gonna be a huge factor, but I'd question if she's actually going to be getting $2,175 per unit in rent for a fourplex she got for $650k in NJ. I guess it's definitely possible if the units are fully updated and in a nice area.

$4,900/mo. in expenses seems reasonable; her P&I is probably around $3,000, so that sounds about right if she's not paying for electricity and anticipating low-ish CapEx since she's renovating the entire building.

Refinancing will presumably lower her mortgage payment (unless she's trying to cash out) because if the building has appreciated, she will hopefully have >20% equity in the property and therefore will not need to pay the MIP anymore. All she will pay are the closing costs for the refinance.

If you truly want $15,000 I'd consider asking for more - open with $20,000 so you're prepared to accept a counteroffer at $15,000. (This is assuming you don't have any documentation for the $15,000 number... If you have actual quotes totaling to somewhere around that, I think you can open with $15,000 and remain firm on it.)

Keep in mind that depending on how much of a down payment you're making, your lender may not be comfortable with you receiving $15,000 in seller credits. My understanding is that they can sometimes be uncomfortable with situations where you'd wind up walking away from the closing with more cash than you brought with you, because then you have less skin in the game than they were anticipating at underwriting. This may be something to bring up with your lender or discuss with your attorney.

Maybe ask your attorney in advance of that? Sit tight implies you're not going to bring it up until the closing...?

Really, I'd just be asking the seller to come up with the money and convey it to me at the closing. If that's not an option, then yes, get them to agree to some kind of credit in advance of the closing, because you will owe the tenant the security deposit.

@Adam Anderson

I have not heard of anyone investing in Sussex County. What towns, if you don’t mind my asking?

It does seem like if you want to invest in Morristown, Montclair, or even Bloomfield - areas you'd expect to experience more appreciation than the Oranges - you're going to need to get creative in order to generate positive cash flow, e.g. live with roommates, Airbnb a subunit, or rent out a unit by the room.

Appreciation vs. cash flow is kind of an age-old question here... I recommend checking out the most recent episode of the podcast (Show 357) for an interesting take on it that I hadn't heard before. Cash flow is a more "defensive" play that allows you to pay your bills, whereas appreciation is a powerful means of increasing your net worth and generating long-term wealth. Which you'll prefer depends on your personal situation.

@Craig Curelop's new book on House Hacking introduced me to the concept of Net Worth Return on Investment (NWROI), which allows you to consider the money you're saving on rent as kind of positive cash flow. If you're anything like me and currently spending an egregious amount on rent, house hacking a property with fairly negative cash flow can still generate a significantly positive NWROI, even without factoring in appreciation. Banking purely on appreciation feels too much like speculating to me, but if I can realize 30%+ NWROI via a house hack with an expected appreciation of 0%, then that starts to look a lot more compelling, especially when I do have the expectation that the property will appreciate (and as long as you're willing to deal with the intangible negatives, like reduced flexibility, property management, dealing with tenants, etc.).

Having said all that, I presently have a property under contract in Morristown which is rented for 1% of the purchase price and cash flows well, but that's because one of the units is a 5BR which is rented by the room - a very unusual, risky, and potentially high-maintenance situation. It remains to be seen how (if?) this deal will go, but I feel like even in a worst case scenario I'm still doing considerably better than if I was renting (albeit with a lower QoL) and I will hopefully have the safety net of appreciation to bail me out if things go extremely poorly.

If I wasn't house hacking, I would not be considering properties that do not generate positive cash flow. For future properties I am not planning to house hack, I will definitely look more closely into the Oranges and well as Newark and Jersey City.

Congrats! What is the monthly cash flow?