Next Steps for a Rookie

[Kyle D.]

Hi All- and forgive me for the long post!

I’m a rookie investor in North Jersey (Hudson County) looking for some insight on my current situation.

About 10 months ago, I purchased a 2 family home with an FHA loan @3.5% down.

As a little background on the property- the home is a legal 2 family, but includes a ~1500sq foot garage with separate gas/electric meters, effectively giving me 3 units. This is what drew me to the property- I was paying 2 family price for 3 units.

When I purchased the property it was fully vacant. I did a very light rehab on the first unit (3 br/1bath), consisting of paint, laundry hookups, LVP flooring in the kitchen, and some minor appliances. The bathroom is still pretty old (think 1960s Pink tile) but clean and serviceable.

The upstairs unit, however was in really rough shape. I went in and personally renovated, doing all new flooring, new kitchen and appliances, paint and plaster repair, and opened up the living room/kitchen. With this work done, I’m estimating I’d see about $1650/month from this unit once I move out.

Currently the property is fully occupied- myself in one unit, and the garage and the first floor apartment both rented out. The rents from the first 2 completely cover my expenses, including capex and such- effectively I’m living for free.

With my one year mark approaching, I’m planning on finding another Multi to HouseHack. Ive also been analyzing out of state markets, as I’d like to jump into a cash flowing duplex elsewhere (to combat NJs pricing). I have about 100k liquid right now, and in a perfect world, I would be able to purchase a ~$150-200k duplex out of state, and a new multi to house hack with that money.

Below are the options I’m weighing.

Option 1) Refi this property to a conventional and use an FHA 203k on my new primary residence.

Pros:

•203k would be perfect for the next property as I will be looking for a fixer upper again. Had I known about this loan last year, I would have used it here.

•I believe based on comps in the area, appreciation and the forced equity from the work I’ve done, I would be at or near 20% equity.

•Allows me to remove PMI

Cons:

•Tough to gauge exactly how this property would appraise as it is unique with the garage unit. Also concerned the older kitchen & bath my hurt the appraisal #.

•Even with PMI, my current loan is at 2.25%, so not sure how much I'd save with today's rates.

Option 2) Keep this property under the current FHA loan and use a Conventional Owner Occupied mortgage to purchase the next property.

Pros:

•My current home will cashflow about $500/unit once I move out even with PMI on my current FHA.

•No need to worry about appraisal.

Cons:

•North Jersey ain’t cheap! For a multi I’d need 10-15% down even if I’m occupying, and for a home that will likely be near 500k, I’d like to keep the down payment low so my $ can be better used elsewhere.

•I’d like to purchase a fixer upper, and this route will leave me going out of pocket for renovation.

•This route will take up most of my available cash, and likely delay me purchasing an out of state rental.

Maybe I’m overthinking all of this, but I’m just not sure what the right next move is. I really appreciate any and all insight!