New to Real Estate, take a look at my plan..

[Carlos Rodrigues]

Hello landlords, my name is Carlos and I'm seeking a future within real estate. I'm currently taking real estate courses to get my real estate license. Book after book I'm doing nothing but gaining knowledge of the business. With still many unanswered questions still in mind I'm on Bigger Pockets to ask questions and learn from you! As I sit in my car listening to BP pod casts, read blogs and write down notes I jotted down notes as I wait for my real estate class to start. Again this is a new field for me as I my occupation is being a Electrician/ Solar Photovoltaic Electrician, so I'm sorry for any silly questions or ideas I might have that might not make sense. Currently taking my 75 hours in NJ to get my real estate license. I choose to take this class mainly for knowledge! It's part of my "college tuition". Getting more into the course I realized how important and useful taking the state exam and getting my license could be. So hopefully by the end of August I can hold my NJ Real Estate License. I think plan on buying and holding a real estate multi family property. I was seeking a two family house with finished or particularly finished attic and basement. Along with 1-2 car garage and a good sized backyard.. The plan, which we can probably see where I'm going with this. Rent both floors and the attic along with the garages and make parking spaces in the backyard for 2-3 cars. I would also like to live in the basement. I would make the basement habitable if current conditions aren't habitable. The goal would be to have some positive cash flow $300-900 a month and live for free. My only worries it renting the attic and living in the basement. Also I would only be putting a down payment between 5-10% and I've head with under 20% I'm required to have this property as a primary residence.. My questions: Do you think I'm over my head? I know it's not a legal 4 family only 2 family, what are my risks? Am I required to make this my primary residence with being under 20% down payment? What other ways would you go about my situation? Fee free to leave any other comments and or links related to my situation for additional advice. Thank you again, and sorry for any punctuation errors.

[Jeff Copeland]

With regards to renting out unpermitted space or non-conforming use of the property, that is a matter of local codes & zoning laws....and probably not a good idea. You run the risk of nosy/annoyed neighbors reporting you due to too many cars/people, too much noise, etc. Or the City/County simply getting wise to the situation and calling you on it. Then you run the risk of legal/financial troubles with the municipality and your tenants, and obviously loss of rent. 

If it looks like a duplex, smells like a duplex, and is zoned as a duplex - you should probably use it as a duplex. 

If you want more units, why not just buy a triplex or 4-plex in the first place?

4-units or less is still considered residential, which means you can get conventional or FHA financing for 30 years at competitive interest rates.

The down payment percentage does not itself determine whether a property must be owner-occupied, the loan product does. 

FHA insured loans normally only require 3.5% down, but their purpose is to promote home ownership - so this product is for owner-occupants purchasing residential (4 units or less) property.

Conventional loans usually require 20% down (though conventional loan products with lower down payments are starting to get more popular...for very well-qualified owner occupant buyers with excellent credit). 

[I recently had a buyer get a "Conventional 97" loan, which, as the name implies, is a conventional loan, but with only 3% down...so there are some interesting loan products popping up these days.]

I would suggest:

1. Sit down with a mortgage broker or lender and discuss your down payment, credit, income, DTI, etc., and determine which loan products you qualify for. If it looks promising, get a pre-approval letter and

2. Start shopping for MFRs with less than four units with an experienced real estate agent who can help you accuratley estimate the rental income potential as compared to your PITI payment.

Finally, if you intend to live in the property anyway, why the concern over whether the loan requires you to do so? In any case, you aren't required to live in it forever - a year usually satisfies the occupancy requirement (see this thread for more discussion on this).

Good luck!