Need Advice- 4plex with CF selling for max appreciated value

[Jolene P.]

Hi All,

I thank you in advance for any and all insights. My situation has many layers so please ask if any points need clarification. My partner and I currently live in Brooklyn in a 1bd 1ba condo that we would like to rent out for about $1500/mth to a family member. We are a growing family and need more space and of course, more opportunity for income building. We initially were looking at 3-plex properties but they are mostly listed close to $650k.

We saw and have interest in a 4-plex in Irvington, NJ listed at $700,000, fully occupied. The two 2nd floor units have 3bd 1ba, the two 1st floor units have 2bd 1ba. There is a bonus unit in the attic that's a 1bd 1ba and 4 rooms in the basement with standing shower and mini kitchen. Unfortunately, the basement only has one exit. Initially, I wanted to house hack this property but with the 4 units breaking even with their rents, on paper living there for free wouldn't be an option. The CF only increases if the bonus attic and rooms in the basement would be rented out. I would have to do a 5% conventional loan to avoid the self sustainable test required for an FHA loan. As a first time investor in a brand new state and city, we aren't totally aware of certain laws but definitely want to do what makes the most financial sense as well as ethically sound decision.
Potential is like wishing in my eyes so a break even amount for rent on a $700k property at 5% down seems like a huge ask. Especially when my realtor insists that it’s a no-brainer deal in terms of the “extra” units. I would ideally not house hack this property and maybe leave all the tenants in place but what unforeseen issues can possibly come up.? The taxes on this property according to the listing is $15,000. With 5% down that’s about $35K not including closing costs and fees.

There’s major renovations that would need to happen over time like new kitchen remodels in a few of the units as well as maybe replace one of the hot water units and one of the boilers. The roof is about 7yrs old and in good condition. There is a shell of a garage in the back and it’s quite close to a main highway. 
Seller is selling it as-is. Best guess of his reason for selling is that he bought it low and during covid, stuffed every unit and room with a tenant on a month to month basis and now wants to sell at the max price based on the comps of the area. The realtor says that area won’t see appreciation for a few years so this will strictly be CF if all currents stay and continue to pay. 

Let’s just say our loan is a 30yr fixed conventional loan at 6.8%. With the 5% down, our mortgage payment would be about $5711 a month. Current rent collected on Zillow is $6000 for the four units minus the bonus rooms. How would you approach this as a first time deal in a new state? 

Long winded I know but trying to paint the picture of my hesitation as much as possible. It also doesn’t help to have a “get the bag” type of realtor. Lol

Thanks… Mari