Reserves for Multifamily investing

[Jainer Villafane]

Hey guys i need your help, my partners and I are planning on house hacking our first property. We are planning on using a 203 k loan, our lender told us we need about $50k , not including reserves ? I live in NY and we should be getting pre approved for $600k- $700K. Is NJ a better rout ? I juts feel like that's a lot of money to bring to the table for a 203 k loan? Especially when the down payment is 3.5 percent down.  ? any info would help. thank you. 

[Reginald Ross]

@Jainer Villafane

Your down payment on $700k = $24.5k. Closing costs can be anywhere from 2.5-7% of initial loan balance which could easily put you above the $50k mark prior to reserves.

A good reserve amount to begin with is 6 months of PITI + max insurance deductible + any planned capital improvements.

6 months of debt service payments at 96.5% LTV, 4% APR and 39 yr amortization is $38,700.

6 months of taxes could be estimated at 1% of property value or $3500

6 months of insurance payments could be estimated $2,000.

An insurance deductible could be at least $25k.

CapEx could be equal to 10% of purchase priced or $70,000.

Add all this up and you need $137,400 in reserves starting out + the $50k you bring to the closing table.

Adds up, don’t it?