Condo I Want And Can Afford Or FHA MultiF That Needs Renters?

Question

Hello BiggerPockets Community, I am looking to buy my first property and wanted some help addressing some issues I am having or I am not seeing. First I can get an FHA loan but, I hate LIVING in houses and would prefer to live in a condo and rent out a multifamily or condo. The mortgage on a duplex where I would be comfortable living in for a short time in my market (Bronx, NY) I would only be able to cover if my tenants pay me rent. If either myself or my tenant take a  financial hit/job loss that mortgage payment would not be able to be paid on time until my tenant AND I are both working.  My question is If I am only able to make the mortgage payment if my tenant pays me rent does that mean that I am unable to afford this property now?

The second issue I am having is that I would prefer to live in a condo preferably a 2bdrm by myself where I can rent out the other bedroom if I want to or need to on AirBNB( If the condo board and NYS still allow it) or to a roommate. I can afford to make the mortgage payments with or without a tenant/roommate. If I put down 20% on the condo I would be able to ride out any financial storms that comes my way but, in putting 20% down I would eat up a lot my investment capital and have to start saving money again for my next purchase. I would also be able to ride out a financial storm if I put 3.5% down on an affordable condo but, I have had great difficulty finding FHA Condos in my area that are affordable.  Interests rates are set to rise by the end of the month which means home prices should drop some and if I have put down 20% on my condo I may not be able to take advantage of buying a small multifamily at an affordable price to invest in.

To add some more context to this I am 100% free of bad debt. The right buy can get me out of the rat race. If I buy a condo that is not cash flowing to live in I will have immediately brought a liability that I want and will have the comfort that I seek but, it won't  taking me to financial freedom as quickly as a cashflowing duplex.  If I buy a duplex  via FHA loan that cashflows I will be on the road to financial freedom but, in a living situation I would not want to be in temporarily. Does anyone have any strategies, insight, or advice  for someone with my dilemma or any suggestions for someone who would like to start investing as an owner occupant of a condo?

Joshua Fulenwider · Answer

@Michael Ansley when deciding on the duplex you should also figure in vacancy.  You can do some research to find out what it is in your area but the short of it is, can you afford it if the unit is empty for a month? You should also keep in mind: taxes, insurance, management expense (unless you are managing it yourself), maintenance, repair reserve (for the big expenses), and utilities (this could be very low if the tenant pays 100% of their own).  If after figuring for all those items make sure you are comfortable with the monthly situation regarding the payment.  Talk to your lender and see what they qualify you for and this will also give you some guidance as to what you can afford.

My experience with condos is limited so I am going to let someone else weigh in on that part of your question.

Account Closed · Answer

I'd recommend that you go with the property you can afford on your own. It's bad enough to have vacancy issues take down an investment property, even worse when you lose the roof over your head too. Sharing a 2-bedroom condo/SFH (either with a roommate or AirBNB) with 20% down sounds like the safest plan, especially in NYC where I know you could find someone to split it with. And that way, you don't have to worry about paying the FHA's mortgage insurance for the life of the loan.

Ceasar Rosas · Answer

@Michael Ansley

Hey buddy, how are you doing??

IMHO, I am not a big fan of condos or coops. Also knowing your market, you may be seeing coops advertised as condos because some websites do not differentiate. Coops remain affordable for a 2 bedroom where you can get something in the 100k-150k range. For condos you'll be easily over 200k, the only ones in the Bronx that I know of that are any less are Parkchester and maintenance is extremely high.

Now as for a 2 family, I always would go this route first. But knowing you have limited funds, I would only do it if I have 6 months reserve to be able to carry the property in case of anything. For example based on a 500k. Your DP will be 17.5k and 6 months reserve might be about 19k so you'll need close to 40k. If you're lucky enough to be able to tie in sellers' concessions in this market then that will be all you need. And then 20% on 150k for a coop or condo will put you out of pocket at about 30k + you'd have to most likely pay your own closing costs putting you at around 40k.

Maybe you can always find other ways to flip the money. For example, I'm flipping to build a good amount to buy a building and have reserves.

Always trust your gut, take calculated risks, and for your 1st do what makes you feel comfortable.

Bryan O. · Answer

@Michael Ansley if you have so little reserves that you cannot afford a 1 month vacancy then you need to not own. Even if it has a tenant you will run into issues: wind storm damages roof/siding, water heater needs replacing, dishwasher dies, etc.

If you live in a place where you rent the spare bedroom it will be easier. Fair Housing laws would not fully apply to you, so you can pick and choose how you prefer. If you short term rental the bedroom, you're literally right there to handle cleanup and turnover so you can make it more profitable.

Regardless of what you do, if you have no reserves you should wait until you do.

Michael Ansley · Answer

Everybody thanks for the advice. Hey Ceasar!!!! Thanks for  commenting. I am leaning towards a 2bdrm condo. Here is my thinking on this and please if I have missed something or my thinking is skewed please share your thoughts. First I want to live in a condo. I have never wanted to live in a house. It's too much aggravation to me. Second based on the conversation that has taken place on this forum I don't have the funds to afford a vacancy in a duplex. I have the funds for 3.5% down on a duplex in the Bronx but, again no room for error after the purchase if their is a vacancy.  Third I HATE CO-OPS!!!! While the neighborhoods and the buildings may be great to live in, the total lack of control does not fit me. The time it takes to get in and out of a co-op due to the co-op board and their interview processes can make exit strategies very tricky in my opinion.  I would also have to run potential tenants and buyers through the board and they can veto any deal that I like and would not have to explain why.  My research showed that even if I  got a non board sponsored unit that I would only be able to keep that unit non owner occupied for a limited time ( 2 years) before having to make it owner occupied again. I am aggravated right now just writing about a co-op as a potential investment.  On top of that I could not see myself putting 20% down and NOT owning real property.

A condo in Parkchester  does not bother me. I won't name all the reasons why here but, here are a few. I want to live in Parkchester. The high maintenance fees do not bother me as long as those high maintenance fees keep special assessments away(Ceasar you knowing that area I am betting you would know more about that then I would).  I don't have to worry about heavy condo board involvement when it comes to buying, selling, or getting tenants. I can afford a 2bdrm condo right now in that area at 3.5% down OR 20% down. Everything right now is about building reserves and saving for closing costs. The OPTION to condo hack is the most affordable plan right now. I could live there for a few years on my own or with a tenant/roommate and pay down the principal, move out and then start renting out the entire unit as a rental with yearly tenants on a lease or on Airbnb (If the condo board allows it. (Again Ceasar I would deffer to your expertise on that). What would the condo closing cost be? I was taught to figure 3% of the purchase price. Again all insight, advice, comments, and ideas are much appreciated. I love BiggerPockets!!!!

Michael Ansley · Answer

Hey Joshua, Thanks a lot for the input. It was very helpful.  The bottom line is that at the moment if it was vacant for a month it would not be affordable.  Thanks for making this decision a a lot easier.

Condo I Want And Can Afford Or FHA MultiF That Needs Renters?

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