House hacking near NYC

[Jonathan Lee]

Hello BiggerPockets,

I am a first-time investor looking to house-hack a 4-unit multifamily near NYC. This puts parts of Jersey, Queens, and Brooklyn on the table. My budget is up to $2.2 million, given that is the FHA limit for these HCOL areas for 4-plexes.

I am leaning towards Brooklyn because:

1) I want to live there myself

Because I am going to occupy the unit, I want to make sure that I want to live there. This mainly means that it is close to transportation and no more than 30-40 minutes from Manhattan (I work in the city), and has good parks nearby to run/cycle. For example, areas near Prospect Park in Brooklyn have high appeal for me. In addition, Brooklyn is filled with young professionals and has a lot of fun stuff to do.

2) I want an appreciation play

I understand cash-flow near NYC is tough, so I want the appreciation play to be strong via the forced appreciation and via normal appreciation. This is especially true given the high price I expect to pay for the property, as I think appreciation will give me the best ROI.

I prefer house-hacking to out-of-state because:

1) I want to own the house I live in

This is a pure emotional thing. I'm not a fan of renting, feels too transient.

2) I'd like to gain first-hand experience managing

Before hiring an out-of-state property manager, I'd like to have the experience of managing a property myself to better understand the challenges.

My questions are:

1) Are my motivations reasonable?

2) Brooklyn, Jersey, or Queens?

3) Is FHA a smart move?

Any other related input is appreciated. Thank you!

[Abel Curiel]

Quote from @Jonathan Lee:

Hello BiggerPockets,

I am a first-time investor looking to house-hack a 4-unit multifamily near NYC. This puts parts of Jersey, Queens, and Brooklyn on the table. My budget is up to $2.2 million, given that is the FHA limit for these HCOL areas for 4-plexes.

I am leaning towards Brooklyn because:

1) I want to live there myself

Because I am going to occupy the unit, I want to make sure that I want to live there. This mainly means that it is close to transportation and no more than 30-40 minutes from Manhattan (I work in the city), and has good parks nearby to run/cycle. For example, areas near Prospect Park in Brooklyn have high appeal for me. In addition, Brooklyn is filled with young professionals and has a lot of fun stuff to do.

2) I want an appreciation play

I understand cash-flow near NYC is tough, so I want the appreciation play to be strong via the forced appreciation and via normal appreciation. This is especially true given the high price I expect to pay for the property, as I think appreciation will give me the best ROI.

I prefer house-hacking to out-of-state because:

1) I want to own the house I live in

This is a pure emotional thing. I'm not a fan of renting, feels too transient.

2) I'd like to gain first-hand experience managing

Before hiring an out-of-state property manager, I'd like to have the experience of managing a property myself to better understand the challenges.

My questions are:

1) Are my motivations reasonable?

2) Brooklyn, Jersey, or Queens?

3) Is FHA a smart move?

Any other related input is appreciated. Thank you!

Hello Jonathan & welcome to BiggerPockets!

Great questions here!

1. From what you mentioned here, it seems your motivations are reasonable. Sounds like you'd enjoy your quality of life if you own a piece of property near a nice park and within a decent commute to NYC. The fact that you're not looking to cash flow immediately shows you're realistic. Cash flow is possible depending on the deal and financing but is challenging to find.
Opening up to a property that may need work and allow you to force appreciation is a solid approach. Most local experienced and cash investors in these areas will likely shy away from the properties you inquire on because the pricepoint may be too high for them. On the other hand most first-time investors may be intimidated by properties that are not Turn-key. This puts you in the 'sweet spot' in my opinion!

2. I cannot weigh in on NJ but happy to share thoughts on NY! About 70% of 4-unit properties on the market in BK and Queens fall within the FHA limits. About half of the active inventory are in BK and the other in Queens which means that you'll have a good sample size from which to choose from.
I am totally biased since I grew up in Queens! Great parks there + lot sizes are typically larger than what you'd find in Brooklyn. This could mean more access to private parking, yard space, etc.
Brooklyn is also super attractive because of the shorter commutes to NYC (on avg.), lower property taxes, and many would argue that there is more to do in BK compared to Queens.
That said, both boroughs can offer what you're looking for but if I were you I'd start searching in Brooklyn then branch out for more options if you don't like what you see.

3. Tough to say definitively which would be best. I recommend you run the FHA vs. Conventional #'s by your lender.
FHA has more restrictions, higher monthly mortgage insurance (MI) and requires a refinance to drop MI in the future. On the other hand, Conventional loans require higher down payments. There are benefits to both loan types but this comes down to each individual borrower's situation and finances. 

All the best to you on your journey!

Abel