First Time Buyer in NJ looking for help!

[Ryan Champin]

Hey Guys!

My name is Ryan and i'm a 30 year old software engineer out of Northern NJ.  I've been reading all about real estate investing for about a year while saving up as much capital as I can.  I've chosen a strategy and have been practicing deal analysis for a few months.  My main concern is the financial part.  I have managed to put away 50k in cash.  I'm worried that isn't enough for my market and am looking for some help from people in my area!

I'm interested in small multi-family properties in which I could house hack for a year or two. I know I could get an FHA loan which would make my 50k more than enough to close on a typical 500k property (that seems to be about the average for a small multi in my area), but I have also learned that due to the high level of competition, sellers don't typically like working with FHA buyers due to the high standards and inspections that come with it. This leaves me to think that i'll need to go the traditional 20% loan route, which is almost double the down payment that I currently have. 20% on the average multi around here is approx. 100k.

I also understand that i'll need some money for reno as well. I'm not planning on buying a forclosure or something in bad shape.  But I have learned that I need to buy something with a small bit of touchup work in order to help get a better deal. I was planning on having about 20k for this.  Is 20k, on average, enough to rehab multi family properties in NJ? I have no experience with rehab costs so i'm looking for some members experience on this one :).  All in, this would put my costs at about 70k.  Should I wit until i put away 20k more? Or go in for it now?

Any help would be greatly appreciated guys! 

Thanks!!

[Ryan Paltridge]

Hey @Ryan Champin,

Working and living in the northern NJ market, I know it can be tough to find the right investment for the right price in this competitive market. It's not impossible in my mind for your current situation. To get a better picture, what areas are you looking? There are plenty of growing towns in northern NJ that can work within your price point. Clifton, bloomfield, bayonne, etc. 

In terms of loan packages, I know there are banks giving 10% down, with no PMI. With FHA, have you considered doing a 203k loan, where you roll the construction costs into the loan? Gives you the option of still having that low down payment and you can still do some rehab to build equity into your home.

In terms of construction/rehab costs, 20k will not get you very far, especially if you are trying to use it on both units. For exmaple, a total kitchen rehab can cost you 25-30k, depending on finishes and how you want it to look. New windows can cost you sometimes 15k. 

If I were you, I may try and target a property that needs a significant amount of work, whether on the market for a long time or off-market where you can get a deal and don't need to be in competition with other buyers. Go the FHA 203k route and build equity in the home, refinance after the loan seasons, and if you invest right, the total cash into the deal will be low (commonly called the BRRR method). Hope this helps.

Reach out if I can help you in any way. I'm familiar with the markets you are looking as in investor and agent. 

- Ryan