All Forum Posts by: Mike Teri

Hi Scott! Be careful taking tax advice from non-accountants, especially on BP. What Jaron is referring to is the current forgiveness of up to 250k in capital gains per spouse when selling a primary residence that has been owner occupied for 2 of the last 5 years. However, that 250k per spouse of capital gains offset only applies to the portion of the property that you resided in, and you will still have to pay capital gains on the portion of the property that has been used as a rental unless you execute a 1031 exchange. A primary residence does not count for 1031 exchange purposes, so you would need to reinvest your capital gains from the rental portion of the 2-family into another property or DST in order to avoid paying taxes.

Make sure you consult an accountant that understands current real estate tax law to evaluate the consequences of both scenarios.

Everything else Jaron said is 100% accurate and this decision depends on what kind of investor you want to be. 

Hi Ashley, fellow New Jerseyan here.

I want to address a couple of your assumptions here, especially as they pertain to the CNJ/SNJ market:

1) Rentals are in huge demand everywhere in NJ. To quote Field of Dreams, "If you build it, they will come". Even in South Jersey, where the purchase prices are lower, there is a silent pool of tenants waiting to be able to afford a place to live that may not qualify for a mortgage. If you want proof of this, look at every Section 8 waiting list in the areas you are considering. I'm not saying that you should consider renting to Section 8, but just to show you that the demand is there even if there are very few MFHs showing up on the market as available for purchase/rent. Always make sure to adequately screen your tenants (background check, income verification, credit report, etc).

2) In the context of House Hacking, with a SFH are you considering renting out by the room? This is a very different way of life than renting out by the unit. Renting by the room would increase your rental income, but you may sacrifice in your own quality of life having to manage so many tenants. If you are comfortable with renting by the room, check the local municipality laws in the areas you are considering to make sure there are no restrictive laws about operating boarding houses. There are a lot of posts on BP about how to navigate rent-by-the-room investments, and these are more commonly allowed in South Jersey than in Central Jersey.

3) House hacking and cash flow do not coexist in NJ in today's market. You can house hack and reduce your expenses, or you can (try to) cash flow by not living in the property. But you can't do both. If your goal is to house-hack short term, and you want to make sure the property will cash flow when you move out, that's understandable and there are ways to do this with forced appreciation or by buying in a higher-risk, up-and-coming market. But house-hacking will cost you money, not make you money. And it will definitely be more than $400/mo!

4) MFH financing has the same product options as SFH financing for owner occupants. You can qualify for FHA loans (3.5% down) for up to 4 units, as of the last time I checked. There are products out there that allow you to use a property's current rents as income if you are acquiring a property that has tenants with leases already in place, and this would help your purchasing power. I would recommend reaching out to a few local loan shops, and highly recommend credit unions in today's rate climate, to see what products are right for you. I do not recommend pulling a home equity loan as a first time investor if you are buying a fixer-upper, the current rate environment is not favorable for rehab projects that run way past their scheduled timeline and you don't want to run into a situation where your family can't meet loan payments while your house is securing the loan.

Hope this helps, I'm happy to share my experiences investing in NJ if you have any questions. 

Good luck!

Hi Anthony,

Tight budgets and NNJ duplexes don't go together unless you're ok with higher crime rates and bad school systems. Also, you won't cash flow in NNJ if you're house hacking. The point of house hacking is to reduce your monthly expenses, so it's not realistic to expect to make a profit living in your primary residence. If you ask most small-time NNJ investors today, they are investing for appreciation and are OK with breakeven scenarios on the cash flow side, which is risky even for a stable market like the NYC metro area. As @Shawn Mcenteer said, rent increases in NNJ are almost a guarantee in the NYC suburbs (~45min from Manhattan). 

Based on no information other than "on a budget" and "as close as possible to NYC", I would check out Belleville, Nutley, Clifton, Union County (Rahway/Linden/Elizabeth/Union), Carteret, and Perth Amboy. All have train access (Carteret has a ferry) and you can be in Manhattan in 45min on public transit. You can find some value here in C-class properties since there are emerging B-class areas in these towns. Expect to pay at least $250k/unit for a C-class property here if it's on the market. If this is outside your budget, then I would suggest you look toward the Plainfields (North, South, and Plainfield) and west (Dunellen, Middlesex, Green Brook) which are on the Raritan Valley train line and are ~1hr to midtown by rail, with easy highway access to 78. 

I'm born and raised here and have been investing in NNJ since 2018. If I were going to house hack and wanted to keep my mortgage payment (P&I) below $3500k/mo with a 3-5% down payment loan option, these are the areas I would look at. Buying a C-class fixer-upper will give you some short term relief on property taxes. Taxes are horrible basically everywhere in NNJ worth living in.

Best of luck!

Hi Keith, not sure if multifamily is in your wheelhouse, but we wholesale properties in Northern and Central NJ that don't fall into our buy box. A word of advice -- do not even bother with FB groups. The skilled wholesalers in NJ have their buyers list and won't go through the hassle of putting a property under contract that doesn't meet the criteria of the buyers on that list. Most wholesalers swimming around FB have never bought a property, never gone through a gut renovation, and have no idea how to pencil out a project. Find 2 or 3 strong wholesalers that are operating in your target areas by talking to people who are already investing in those areas (chances are they have used a wholesaler in the past, or are farming their own deals and may toss you whatever doesn't meet their needs), give them your buy box, and make sure you have your funding lined up to act quickly on a deal. Then follow up regularly.

Unfortunately we can't help you with deals in South Jersey. Be careful with Camden and Mercer counties, these are commonly found on lists of most at-risk markets in NJ relative to price corrections. 

Good luck!

Hi Gordon, I am interested in whether you were able to find the correct entity structure for this partnership/operator from a cost/risk/return optimization perspective. I am in the DD phase of a boutique hotel acquisition with a similar partnership structure. If you're open to connecting, I'd like to hear how your scenario panned out.

@Christopher Morris -- I have a two-family in North Jersey outfitted entirely with ductless AC/heat. The units are efficient and have worked great in hot summers and cold winters. Just make sure you get it installed by a certified installer for whatever manufacturer's unit you end up going with. Most of the off-brand units are rebranded Carrier or Midea models, which are the least expensive and work just fine for medium/light duty. That said, this is not a DIY project unless you have experience with ductless systems. It would be much cheaper to do electric baseboard and a window AC depending on how big the space is.

@Alex Bekeza

@Mayer M.

@Jacob Sampson

Thank you all for the responses. We have targeted our search specifically to local community banks and CUs and I hope to have some good news in the coming days. @Jay Hinrichs We also reached out to our private lender to see if he will restructure the original financing, so thank you for that tip -- carrying 13.5% at the moment, not ideal but with no points and no track record and a minimal rehab, we thought we would be golden. I am sure we will get some support there.

Much appreciated everyone, stay safe out there.
  

Thank you Jay -- I'll be honest, I didn't even think to negotiate for temporary "refinancing" with our private lender. That is great input, much appreciated. Unfortunately this is only my second deal, so I don't have a pre-existing relationship with a community bank's portfolio lending dept. I will continue to shake that tree as well, certainly can't hurt. What hurts is the monthly payment to the HML.

Thank you, Whitney! I have reached out to quite a few community banks but I am at the mercy of voice mailboxes right now as most of them are shut down. I will keep trying, but it's good to be able to narrow the focus since it seems like the situation for non-QM loans is not lender-specific.