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

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

Carlos Rodrigues
Investor · Kearny, NJ · Member since 2016 · 214 posts · 29 votes
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.
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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
10y

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!

Copeland Morgan LLC4.770 Reviews
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  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    10y

    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!

    Copeland Morgan LLC4.770 Reviews
    WebsiteView Page
    1Reply
  • Carlos Rodrigues
    OP
    Investor · Kearny, NJ · Member since 2016 · 214 posts · 29 votes
    10y
    Thank you Jeff Copeland I will do as you advice. I will definitely contact a mortgage broker and discuss different types of loans and see what's best for me. I will also talk to a well experience realtor do get some guidance as well. And the only reasons I worry about having to keep it as my primary residence for x amount of years is because I would like to continue to grow in real estate and not be locked in for 3 or 5 years. But I'll look into that some more. I appreciate your time in responding and for your help!
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  • Rafael Norat
    Investor · Lodi, NJ · Member since 2013 · 487 posts · 179 votes
    10y
    Carlos Rodrigues hey Carlos. Look up flippers and funders meetup in west orange. It's an investment network group that draws a lot of local investors realtors rehabbers and such. Network a bit and see what others are doing and in what areas. There are a couple other network groups in the area as well. Definitely get out there and get local opinions on laws, areas, and what to do. That should help tighten up your plan. I just got my license a couple months ago. Great learning experience!
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  • Carlos Rodrigues
    OP
    Investor · Kearny, NJ · Member since 2016 · 214 posts · 29 votes
    10y
    Rafael Norat thank you for letting me know about this meet up. I just did a quick search on it and it looks like it's every first Wednesday of the month. I'm not to far from West Orange and I'm going to contact the group to see if I'm able to attend. I'd love to learn, hear and share other people's experiences! Thanks again!
    0Reply
  • Doug Minton
    Landlord and Real Estate Agent · West Orange, NJ · Member since 2011 · 67 posts · 38 votes
    10y

    @Carlos Rodrigues hey sir! I am an investor and an agent in West Orange NJ. If you want advice, then send me a email via biggerpockets. We have a mastermind group in West Orange. Also, attend the meetup that @Rafael Norat mentioned. It's one of the better ones in NJ. I was attending it from the very beginning of its inception. There are a lot of good people you can network with there. I can share with you some other REIA's as well. Just send me an email, so I know your serious.

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