Almost have the first...

[Kevin Santos]

Hey BP, 

I'm just around the corner from closing on my first deal. I ended up going a different route than what I originally intended but everything is seeming to fall into place and I'm working around the initial plan. Like many on the site and in the podcasts, I was planning to start with a multi-unit, one that had 3-4 units so I could at least live free if not cash flow a bit here in NJ. Instead, I ended up with an REO that will be (somewhat) of a live-in flip. I went with an FHA 203k streamline loan (thanks to the book on investing in Real Estate with low and now money down!). I had a few questions and wanted to get some different opinions on it.

I got the property for 170K, needs about 30K-35K worth of work. When fixed, it's worth between 260-270K (it's a townhouse, adjoining unit sold recently for 250K cash). 

I do plan on living in the property at least one-two years but am already planning what to do on once it's fixed with the equity I'll have created :). 

If I stay, I know I can borrow against the equity with some of the concepts mentioned in the book. I could keep the low FHA rate, and have a nice renovated place to live in with my girlfriend, while acquiring other properties. This to me is the less exciting option.

The other perhaps more aggressive is to move and pick up 3-4 unit and live there rent free and I originally wanted. Does it make more sense to sell the townhouse, and use the cash to trade up to something bigger? Or does it make more sense to refi, keep townhouse as a rental, and then use FHA again to purchase my next multi unit property?

One more thing ... I really like areas that have downtowns with retail stores on bottom and apt units up top. Read through some of the FHA guidelines and I might be able to do this if property is primarily residential in nature, but I'd appreciate any guidance into commercial investing and if the rules are any different if you have these mixed use buildings.

Would appreciate any feedback to start the discussion. Thanks ! 

Kev 

[Christie Duffy]

Congrats! @Kevin Santos I am doing something similar. I live in a condo in Hoboken and I am moving (hopefully, under contract now) to a multi in Montclair. Only it's not a multi!... Here's what I did: If you can, I would keep the townhouse as a rental and purchase/move to the multi. However, depending on what part of New Jersey are you looking to buy in, you may need the cash from the townhouse sale. We are keeping the condo because the rents in Hoboken are crazy high aka good for us ($2200-$2500 for a 1 bed). I have been shopping for a multi for months in North Jersey (Montclair) and everything on-market has about 10 offers. Multis are so hot right now in towns with a great downtown, like Montclair. Everything is bid up to the point where there is no cash flow, let alone live for free. My point is that for on- or off-market offers, FHA is not appealing to the seller. It hurts your offer in this really competitive sellers market. In order to get away from that craziness, I targeted large single family homes that are zoned for 2-family. Less competition, yet the homes are in much better condition. If you're still going to need to do work on the home, then why not find a single family with a great layout for conversion? But you definitely want to talk to the building/zoning department prior to assuming anything. There are rules about parking and fire code, etc. So you need to make sure the home can be converted and meet all these standards.