How terrible is this deal? Am I doing this right?

Question

Newbie here trying to do luxurious house hacking.

Goal: Buy a class A or B multifamily for my family and my extended family while trying to reduce housing costs and build equity in NJ/NY area using a VA loan.

Requirements / Wish List

1. 2-3 bed room unit for my own family

2. 1-2 unit for my extended familiy

3. an extra unit for rental income

4. Within 1.5 hours of commuting distance to midtown manhattan

5. Suburb feel but within walking proximity to a grocery / town area.

I know this is a tall wish list and I don't delude myself into thinking that I can live rent free especially in this competitive market. I don't have the option to move anywhere else and I don't feel confident about out of state investing.

I know that this is probably not a great deal but I didn't expect it to be this terrible. Am I doing this right? This is in Bayonne NJ area. Property seems to be in semi-good condition but we would like to perform some renovations on our unit (upgrade kitchen). I did put in what i feel were conservative numbers but maybe I was too conservative. Expecting to hold for at least 10 years.

How does this compare to this property in Tarrytown, NY

Bayonne vs Tarrytown thoughts

1. both seem to hold strong value because these areas are popular.

2. Tarrytown is more family friendly and already established vs Bayonne which is up and coming has costco and walmart which wifey loves.

3. Bayonne has tolls to NYC vs Tarrytown has no tolls. Additional monthly cost of about $280 to get to work.

4. Tarrytown property is very rare for the neighborhood. New electric stoves. 2 Apts need updating -- approx 15k (cosmetic). Seems to be in good condition overall.

5. Bayonne kitchen needs updating. Rent a little bit lower. Seems to be in good condition overall.

6. We will be living in 1 unit and extended family living in another unit (contributing about $2k / mo). Reports above assume full occupancy.

7. Planning to live in tarrytown property for at least 5 years before we expect to grow out of it and rent out completely.

8. Planning to live in Bayonne property for at least 10 years before we expect to grow out of it and rent out completely.

9. Spouse and I have comfortable incomes. Currently renting 2,300 in Queens, NY but wanting to have a bigger place.

Would love honest feedback. Would appreciate it before making such a big decision.

Jaysen Medhurst · Answer

@Leslie Ann Carabuena, do your numbers reflect you living there (no rent in that unit) or after you've moved out (rent from all units)? Run them both ways. A few of your assumptions need adjustment:

• Very unlikely that you'll be able to purchase with $0 down. How are you planning to do that?
• $40k for closing costs is about 10X the U.S. average. How did you get to that number?
• You're not accounting for management (always include), lawn care, snow removal, admin/professional costs.

I definitely like the Hudson Valley over NJ, personally. I used to work in Irvington, just South of Tarrytown, and it's really a terrific area. But those taxes...OMG. I'm glad that I live in CT!

Househacking can be great. You might find a way to lower your living expenses and build equity, but don't expect that it will be a great investment after you move out. Westchester suffers from rent-to-price ratios that are way out of whack, compounded by those bonkers taxes.

Mukul Lalchandani · Answer

I think $40k closing costs is unreasonable for a $1M purchase for NYS. I'm in contract to buy something Tarrytown and my closing costs are similar. The taxes does suck, but coming from NYC, it is similar when you factor other carrying costs.

John Bucci · Answer

Yes, the express to grand central is about 37 min. Stops at Harlem and Grand Central ONLY. so assume Harlem is about 25 min? and then another 10 to GC give or take. And yes they come about every 15 min or so. Depending on the day/ time of course. Local trains are about 50 min stopping at each town along the way. Currently the train schedules are altered, so if you're checking now it may not be accurate.

Leslie Ann Carabuena · Answer

Thanks @John B.. I am wondering about the commute. Google says its 1.5 hours to midtown if you take the metro north but when talking to locals they say they can get to grand central in 40 minutes if you ride express and that it comes every 15 min or so. Which one is correct? How long would it really take to get to Harlem 125th station come from Tarrytown? How often does the express really come? HOw come google estimates it a lot longer?

Re the VA loan, I think they removed the limit. We were able to qualify pretty easily with several lenders.

John Bucci · Answer

@Leslie Ann Carabuena Hi Leslie, I'm born and raised in Tarrytown and an agent here. I think I know which property you're looking at, and it does say it has an accepted offer on the MLS, but regardless don't VA loans max out in the 700k's? That's what I had thought...

Anyways, this is an amazing town to live in, with one of the best commutes to NYC. Apart from the high taxes it has all you could ask for lol...There's a few other properties around 600k-750k that I think could be good options for you. It's very tough to cash flow much around here after you move out (as you alluded to) but covering all the costs is possible or making a few bucks is possible.

Any questions about the town or real estate feel free to reach out.

John Walter · Answer

@Leslie Ann Carabuena $40k for closing costs doesn’t seem too crazy, depending on the lender. I used Navy Federal for my first go around and had $38k in closing costs...for a condo.

That blew my mind, especially when almost $15k were just their fees alone. I switched to Veteran’s United and have been so impressed with them. They let me know I was exempt from the VA Funding Fee, which is about 2.5% of the purchase price depending how many times you’ve used this benefit (equates to about $11,500 savings for the multi family I’m looking at now).

@Max Vishnev You’re right, I had overlooked the new apartments near 19th. I hope, for Bayonne’s sake, that spillover does take place.

Ryan Ross · Answer

I've analyzed a few deals using the recommended $1000-$2500 window, but haven't heard about a 4% of the property value metric. Either this is way off (which i'm hoping!), or I need to adjust how I am analyzing my deals. Looking forward to hearing the answers you get!

Leslie Ann Carabuena · Answer

We are already preapproved. The 40k comes from one of the lenders saying closing costs are about 4% of property values. Does that sound right? I'm pretty sure that we would not have positive cashflow if I were to do an analysis without the unit we would occupy. But I was hoping to have positive cash flow when it was fully rented. Is this even possible?

Jaysen Medhurst · Answer

Ah, @Mark F., I missed the part about this being a VA loan in @Leslie Ann Carabuena's original post. Importantly, the removal of a cap on VA mortgages, doesn't mean any vet qualifies for any loan amount. The lender may still require a DP, if they are worried that DTI will be too high.

Max Vishnev · Answer

@John Walter As a home-owner (house-hacker) and active RE agent in Bayonne I can tell you there has been a lot of investment/development along Broadway and around all 4 light rail "hubs".  So it's not just east or Route 440.  If you look at Bayonne's Master Plan from a couple of years ago, two of their key priorities are to revitalize Broadway and to encourage development in the 4 "Transit Villages", which is exactly what's happening.  There are also new luxury apt buildings near Hudson County Park (now known as Gregg Park) and Ave C, among other places.  And there are more and more new 2-family homes being built all over the place.

With price per square foot still hovering in the mid $200s and the commute to Downtown Manhattan an easy 30 minutes, Bayonne is attracting a lot of interest, and I think it's a great house-hacking opportunity, especially for those coming from much more expensive markets (most of NYC and northern suburbs).

To your point, the larger-scale activity is east of 440 on the former Marine Terminal only because there is so much space there and room for big-box stores like Costco, Lidl, Lowe's, Walmart, etc.  Starbucks will be opening next to Lidl this year.  There will be a spill-over effect from all that development (largely luxury rentals and big-brand commercial) for home-owners/house-hackers, because the tide lifts all boats.

How terrible is this deal? Am I doing this right?

Most Popular Reply