SFR or MFR starting out??

Question

I'm looking to purchase my first rental property and have been searching for a deal that would generate positive cash flow based on my projections. However, finding properties that would cash flow with a 20-25% down payment on 400k property has been challenging. I have some funds in my 401(k), and I'm considering whether I should cash out some of them to help with the purchase.

I want to remain local in NJ or at most drive down 1hr to PA (self-manage or, last resort, hire a PM)

However, I must also consider maintaining reserves, a safety net for my primary home, and an emergency fund.

It's just hard for a new investor now :(

Shawn Mcenteer · Answer

HI @David Fals what part of New Jersey are you in?  Anything single family will require very creative strategies in order to generate cashflow.  Typically will be rent by rent strategy (which is tough for none owner occupants) or College rental.   Anything else tends to be major challenge with SFR.

Multi family properties on the other hand tend to be more lucrative with numbers, especially if you are open minded to different strategies.   In most case when I have clients putting 25% they will be cash flowing, a lot of that has to do with looking at things a bit differently. In all honesty my clients putting down as little as 5% tend to cash flow as well.  Cash flow is possible if you are flexible.

Ericka Parrott · Answer

Hi David, you need a discounted propety, have you tried hyper focusing on off-market properties in your desired area.  Someone is always getting a divorce, or has a distressed property they need to get rid of.  Pull the vacant properties in your area and call the owners.  There are plenty of ways to do this.  I have Regrid ( I use it mainly for land), its 10 bucks a month and they have vacant property information they pull from the USPA.

Nicholas L. · Answer

@David Fals

hello.  unfortunately, I think you are right - it's a difficult market for investors, period.  there's a tremendous demand for inventory - both primary residences and rentals - and so buyers are willing to accept lower yield than a lot of us think makes sense.  (or if they're primary buyers, they don't care about yield, since they're going to live there.)

i just went to visit two very distressed properties yesterday that i would buy.... if they were priced 50% lower.

i wouldn't cash out your 401K, it's not worth the penalties.

the only thing I can say is to keep looking and don't buy just to buy.

SFR or MFR starting out??

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