Newbie Investor/Aspiring House Hacker in NJ!

[Andrew D'Alessandro]

What's up BP! Sitting on my couch reading "How to Invest in Real Estate" (shoutout Josh and Brandon) and tenant number 3 in the seven steps to overcoming RE investment fear is to PARTICIPATE. So...here I am with my first post on BP.

My significant other and I are looking to acquire our first property via a multifamily house hack in Union/Essex county NJ. Would love to connect with any investors just starting out or anyone who has experience, insight, words of encouragement with regards to multifamily investing in the New Jersey market. 

One topic that's been on my mind has to do with FHA loans. Specifically, we've received some feedback from lenders and agents that, in this market, sellers are moving FHA offers to the bottom of the stack given the assessment/inspection criteria that needs to be met in order for the deal to proceed. Would love to hear if anyone has had experience with this this in the past few months! Thanks!

[Erik W.]

Hi @Andrew D'Alessandro, welcome to BP!

First piece of advice is do not buy any property with your "significant other."  If you're not ready to commit to a life-long union, then you certainly don't need to buy real estate together.  One of you buy it.  If one of you wants to take out a second mortgage on it to secure his/her interest, that's fine because it keeps the deal clean and there's nothing to dissolve if/when the break up occurs.  I say if/when because over 50% of young couples do break up.  When you're married there's a legal process for how assets are divvied up by default.  When you're not, it's a mess because you're basically a joint-partnership in the eyes of the law, and unless you've carefully planned out dissolution it gets messy (and expensive) quickly.

So, how about the investment itself?

FHA is typically for people with low down payments like 3%. It's also notoriously picky on the inspection process and has to pass many Govt rules. You will be in competition with cash buyers who have no loan to get or any Govt regulations to deal with. If you were the Seller, how much concession would you give to a Buyer who has no experience, little money, and must wait on the whims of the US Govt to approve your loan vs. someone who has cash in the bank and is ready to go today? Keep that in mind: the real estate market is a feeding frenzy right now. Houses are selling above list price within a few days of hitting the market. All this is said so that you can manage your expectations. Do not plan on getting the first house (or the 5th house) that you offer on, and don't expect to get a discount. Odds are, you will have to increase your offer price significantly above list price to tempt the Seller to wait on you to close the deal. That means you will probably either pay a lot more and/or will lose a lot more deals before finally getting one.

This is not meant to be discouraging, but newbies often quit when they find out how hard it is to get started, and the method you're using (FHA loan) will likely mean you have to have more patience than the average investor who already owns a personal residence and is looking to expand into rentals. Good luck, and stay hungry!