House-hacking a multi-family to get into RE

[Andrew Rodriguez]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $760,000
Cash invested: $35,000

House-hacking a new construction two-family home in northern NJ just outside New York City. Used FHA loan to purchase, will re-fi as soon as possible to get rid of PMI and, as a result, increase monthly cashflow to $600/mo+.

What made you interested in investing in this type of deal?

I was interested in leveraging a low-money down route into RE investing because I graduated college with $150k+ of student loans that I am aggressively paying down and, as a result, wanted to get into RE with as little money down so that I did not have to change how I paid down my student debt.

How did you find this deal and how did you negotiate it?

Being close to NYC, the market is very competitive. I looked in several NJ towns (Jersey City, Hoboken, etc.) for 12-18 months before finding this property through my RE agent, which was my 2nd or 3rd agent. We lost our first bid on the property, but the original buyer lost his job due to COVID-19 and lost his financing for the deal. When the house came back on market, we made an offer the first day and negotiated the seller covering half the closing costs.

How did you finance this deal?

FHA loan with 3.5% down.

How did you add value to the deal?

The house is new construction so this is not a sweat equity play. We are trying to manage a high-end rental property and provide a great place to live with great landlording service. The property is walking distance to the PATH train (subway) into lower Manhattan, so rent rates are increasing and we aim to appeal to high earning tenants.

What was the outcome?

We are still house-hacking and have thus far had two sets of good tenants.

Lessons learned? Challenges?

The PMI on the FHA loan is signifcant and cutting into profits more than expected given the high purchase price of the home. We tried to re-fi into a conventional using the appreciation on the property from the market going up. Instead of sticking with our trusted lender, we went with Bank of America because of the low rate they offered even though I was warned that their assessors were sub-par. We received an egregiously low assessment and did not qualify for the re-fi.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes. Estrella Rosenberg is our agent, she does residential and multi-families, and we love her. She can recommend her partners (lenders, attorney, etc.) that we also liked.