Buying Multi-Family in/around Newark, NJ

[Djimitri Celestin]

Hello everyone!

Rookie investor here, in the process of buying my first multi-family. I've seen quite a few properties and am doing my analysis to make an offer.

For Context, there are two specific properties I am considering on an FHA (Pre-Approval Secured)

1) A legal 3 Family with a "bonus unit", that is fully renovated, and all units are leasing at or very close to market rent. Considering the 4 units, it is a home run, with the 3 "legal" units, it cashflows maybe a couple hundred a month. 

2) A legal 4 family with partially finished basement. All units are far below market rent, but all tenants are month to month, with one eviction happening in the next month. At Market rents, this would cashflow quite nicely, without even counting the possibility of utilizing the basements.

- Does anyone have experience with these "bonus units", specifically pertaining to renting them out?

           From What I understand, I could live in them but it's a risk to rent them out to tenants. One website I saw, mentioned that if the local authorities find out, the landlord could be liable for a                    relocation assistance payment to tenant equal to 6 month's rent. 

- How much can a new owner raise rents? 

           It seems NJ state does not have rent control, but certain municipalities have their own rules in place, although I couldn't find conclusive information on what the current rules as of 2023 might be or if they still exist

Thank you in advance for your help! 

[Shawn Mcenteer]

Hi @Djimitri Celestin my pleasure, always here to help NJ investors.

FHA is 3.5% down but you'll have to pay PMI, you'll have to go through FHA appraisal and guidelines. PMI will cost you thousands of extra $ each year. In order to remove PMI you must refi. If rates are lower that's not so bad, although you are forced to restart the loan which stinks. If rates are higher well that really stinks.

The loan I would recommend is a low money down conventional mortgage with NO pmi and NO fha guidelines, no reason to refi (if rates go down you can do buy down anytime) You will have to put 5% down for anything under 720k but you'll be saving thousands without the PMI and the fact you can actually offer less than others because most sellers will find our offers more attractive being that it is not FHA. Sellers, particularly listing agents want nothing to do with FHA. Most lenders do not offer loans like the one I am talking about so they just say its "not possible or does not exist" I will let you know this loan is life changing and all my multi family clients use it.

Long term what does Newark look like, you can find a property and may work the first few years becuase NJ courts will side with you being an owner occupant. The day you move out the owner occupant laws go away and your property becomes a true investment.  In Newark, NJ evictions are near impossible and rent control is very strict.  So you purchase a property that looks great right now and maybe you have some success cleaning it up but most tenants in the area understand the laws and will leverage them to their own advantage.  Last year I raised rents over $500 on 1 property alone, that will never happen in Newark unless you turnover tenants, if tenants refuse to leave and keep paying very low rent they will stay a life time.  If tenants stop paying rent they'll stay many months to a few years before eviction courts maybe ask them to leave.

Owner occupying basement is the closest you can go to making it work but it is still illegal.