Home Buying in Bergen County>Question Details

Eva, Home Buyer in Bergen County, NJ

Which makes a better investment a multi family home or a condo? I'm looking in Hudson county and Bergen county. I want to know what is better.

Asked by Eva, Bergen County, NJ Mon Dec 21, 2009

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Barbara Weismann’s answer
Please allow me to clarify a few things -

1st - My point was that there are many multi family units and correspondingly sales in Garfield the majority of which are 2 family properties.

2nd - I was not commenting about the price of any property being valid or not.

3rd - On price appreciation - my point was entirely missed so I should have stated it differently.

The value of income producing property is it's rate of return; if you have to look to price appreciation for it's value rather than it's income, it doesn't make sense.

Regarding apprecation, I stand by what I said. It is reasonable to expect appreciation in 3-5 years. Even Jeffrey Otteau, who was among the most pessimistic analysts of the NJ housing market is forecasting appreciation. Nothing I've read has said it's going to be more than moderate.

4th - My major point is that before you look at any income producing property or consider any purchase, you must get your ducks in order. You need a good accountant and a good attorney. With their guidance, you can learn about income producing investments and formulate a plan to reach your personal goals.
0 votes Thank Flag Link Sat Jan 2, 2010

Please do not hesitate to give your opinions on the market in Garfield, but do not claim to be "correcting" others posts. The original poster would not be wise in spending close to $600,000 for a 2-family in Garfield. Of the 64 sales of multi-family homes in Garfield, only 2 have sold in excess of $570,000, and both sales took place at the beginning of the year. The market has been falling, and the multi-family market has been falling faster than the single family market.

The median multi-family home price in Garfield in 2008 was $368,000. The median multi-family home price in Garfield in 2009 was $307,500. That is a huge drop of 16%. You do not want to be purchasing a multi-family home in Garfield at nearly TWICE the median home price in a FALLING market with HIGH TAXES and NEGATIVE cash flow.

By the way, not sure what the reference was to the proper MLS system for Garfield. I am of course in the New Jersey MLS. And the GSMLS. And the Hudson County MLS. I've appraised countless multi-family properties in Garfield over 25 years.

By the way, you made this statement, which DOES need a correction: "But, with the higher property taxes, it's nearly impossible to make a new 2 family purchase a good idea for anything but price appreciation over the next 3-5 years; the rents can't possibly cover the costs without a large down payment."

I would not advise a potential multi-family buyer in Garfield to anticipate price appreciation in the next 3-5 years. Especially a potential multi-family buyer looking at a home valued at the extreme high end of range that doesn't have a prayer of having positive cash flow in the forseeable future, if ever.

I think it is important that we as Realtors offer a realistic picture of the market. We gain credibility by offering something close to the truth. We lose credibility when we become cheerleaders.


Marc Paolella
Relocation Director
Member: Worldwide ERC
Member: New Jersey MLS, Garden State MLS, Hudson County MLS
Licensed Realtor NJ
Licensed Appraiser NJ & NY
Century 21 Joe Tekula Realtors
Agent of the Year 2008
Agent of the Year 2009
Owner: Sands Appraisal Service, Inc.
Phone (direct): (973) 584-4235
Search the Garden State MLS: http://www.marcpaolella.com/SearchMLS
0 votes Thank Flag Link Sat Jan 2, 2010
Eva, DEFINITELY a multi family. If I could go back in time, and buy my first home again, based on what I know now, it would have been at least a 2 family.
0 votes Thank Flag Link Sat Jan 2, 2010
which house do you think is more in demand, a one or a two family,
Horace, you don't think there's a big market for 2 family homes, yet you think there is a market for HALF a home's interest? @@
0 votes Thank Flag Link Sat Jan 2, 2010
I would like to make a few corrections to the answer below because Garfield, NJ's prmary MLS system is the New Jersey MLS & there have been 64 multi family sales there during the past 12 months. Garfield has an abundance of multi family properties in its housing inventory most of which are 2 family homes. Of the 64 sales, 58 were 2 families.

On the topic of new construction, it's very true that property taxes for all new construction are often higher than the same selling price of a resale property. Why? Because you're setting the tax assessment at or very close to the new construction sales price while the tax assessment for a resale property had its basis set on a much earlier and lower basis. If you're confused, contact me & I'll explain this further.

On the other hand, with new construction you shouldn't have major maintenance issues for quite a while so the cost of running the building will be much less. And, as a side issue, new construction usually covers more of the lot than older homes so there's less exterior maintenance as well.

But, with the higher property taxes, it's nearly impossible to make a new 2 family purchase a good idea for anything but price appreciation over the next 3-5 years; the rents can't possibly cover the costs without a large down payment.

On the subject of down payments, some folks are opting for large down payments today because of the low rates of return on financial investments now.

Investors rarely buy single family homes here unless the price is below market which means it's a wreck typically. They fix and hold these homes by renting them out with large down payments. They buy in negative markets & use the rental income/depreciation to pay off the property & then sell it as a 1031 exchange for better properties. I'm not sure this is what you want to do but, again, talk to an accountant about this.

The very best answer was Jeff's where he outlined all the advantages & told you to make sure you carefully investigate everything. I also emphasized to you that you must learn about this thoroughly with a good accountant 's counsel.

Real estate values are intensely local. Garfield has always been a strong multi family market so you're not wrong in looking there. It is purely, as Jeff pointed out, a numbers game and this is your own business. Treat it as such - don't let those shiny granite counter tops fool you. The numbers could make it a huge mistake.

Here's another question: Are you going to live there? That changes the entire picture. In that case, it might be OK to take a loss because your cost of ownership may be less than a single family & you have so much more equity.

As for financing, there's no one rule for that. Again, you need only your accountant's guidance on this. I have investors who always refinance. Why? Because as the mortgage is paid down and rental income grows, over the course of several years they refinance to take cash out based on the higher rents - this is non taxable income.

Here's the first thing you should do - make a plan. What is your objective? For this, you need an accountant. I keep saying and so does Jeff that you need to learn everything about this first with the help of an accountant. Then & only then should you make a purchase because then & only then will you know what the right property for you will be.
0 votes Thank Flag Link Thu Dec 31, 2009

Frankly, this price sounds ridiculous for a 2-family in Garfield. I do not think the rents you are going to get will come close to generating a positive cash flow. BE CAREFUL. Your buyer's agent should be going over the numbers with you to see if this makes sense.

There have been very few sales that high in Garfield for a 2-family over the past 6 months in the MLS system. There are even some older 3 and 4 families that have sold in the mid 400's with far lower taxes.

You are buying at the high end of range in an area that does not command high rentals, and your taxes are extremely high. Multi-family prices in northern NJ have been coming down sharply in the past year. Close to $600,000 for a 2-family in Garfield sounds a bit insane to me.

I would look for a better opportunity.

Good luck!


Marc Paolella
Relocation Director
Member: Worldwide ERC
Member: New Jersey MLS, Garden State MLS, Hudson County MLS
Licensed Realtor NJ
Licensed Appraiser NJ & NY
Century 21 Joe Tekula Realtors
Agent of the Year 2008
Agent of the Year 2009
Owner: Sands Appraisal Service, Inc.
Phone (direct): (973) 584-4235
Search the Garden State MLS: http://www.marcpaolella.com/SearchMLS
0 votes Thank Flag Link Wed Dec 30, 2009
Eva, I am just gushing to jump in with both feet on this one.

This is such a good question that I am going to submit it to my "BLOG CRUSIBLE"
Eva, this is a NUANCE question. And let me hasten to give my interpritation of "nuance" just to be sure we are on the same page. I have not looked up the word, but I interprit it to mean "a difference that is so subtle that most people would miss it. How am I doing Mack Mc Coy?

I will venture to give you the answer to your question, up front then try to justify it. This is a question equivalent to "is it better to pre-pay your mortgage loan or not". Only the true logician will get it right. Just in case you are curious, I say, almost never prepay. But I digress.

My gurus say that a SINGLE FAMILY house is the best investment for any begining investor.
Reason one, which house do you think is more in demand, a one or a two family, based on what my fellow agents have told you? Yes, you are correct, the two or three family. Now what have you been told about supply and demand? Again you are correct, the greater the demand, the lower the supply. and if the supply is lower what do you think goes up? Again you are right the price.

Many careful observers have found that the premium price that one has pay for a two or three family, plus all of the other higher costs that my "coleges" (I can't spell that word) have already admitted to, will not allow you to achieve a positive cash-flow. Some might even tell you, "it depends on your down payment, completely ignoring the OPPERTUNITY COST of the extra money you will need to put down to generate a make believe positiive cash-flow. Oppertunity cost, is the interest you would have earned, had you not paid all cash for a given investment to fool yourself that you have a positive cash-flow.

Incedentally, an Ideal investment has the following elements: the "I" represent income, "D", depreciation, "E" equity via amortization, "A" appreciation, and "L" leverage. If you pay cash, you loose leverage, tax deduction and oppertunity cost. The bigest headache in owning a small rental property is known as T&T (toilets and tenants). You become the proud handiman and manager of a property too small to deligate to a paid manager/handiman. What happens if you go on vacation and the toilet brakes on the second floor?

Your Tenant, or tenants of a two or more family, is usually missing a thing called "ownership-pride", since none of them is identified exclusivly with that property. In a single family, even if you were not smart enough to rent it with an option to buy it, the occupant would still be identified with the property to onlookers, which instills a different mentality in them.

Ok, let's talk single family, herein after SF, and all the upsides. Bread and butter SFs, not being a premium are cheaper per square ft. 2. SFs areas appreciates faster than multi areas 3. all of the other costs except for the interest rate on the loan are less. 4. you may give the renter an option to own a half interest if he pays on time, does the garbage and fixes the toilet and pays an extra amount above the market rent that will be credited toward his down payment for the one half undevided interest you plan to sell him in a year or so.

With one swipe you have solved the tenant-mentality problem, the management problem, the cash-flow problem and last but not least, because the kind of person that rents a whole house is more likely to be a YUPY, in six months you could place him on the deed, ostensibly, as half owner and take back a quitclaim deed to protect yourself. This would allow him to refinance in his name to buy you out ostensibly, but since you own the whole, you get off the deed and keep the option instead.

What you are doing here is selling him an undevided half interest, but he will continue to pay rent for the other half and pay the bank for the loan on the half that he now owns. You secure your half with an esculating option to buy back one half for a dollar. But your half would be entitled to the appreciation too. You can now take your funds to another sinmilar deal and you may do this until the cows come home, because you are not tying up your credit, nor your funds in one property. This is called "pyrimidding". You only own an interest in one half of each property, but none of the management problems. My gurus call this "control without ownership". You do not have to implement the entire approach to be ahead of the game...
0 votes Thank Flag Link Wed Dec 30, 2009
Hi Eva,

Again, yes a multi-family home is a better INVESTMENT. But like all things, you need to find the right Opportunity. It might take MONTHS of looking, and you shouldn't rush this decision. I'm reasonably educated on this stuff and I didn't find THE house until month #4.

Yes the taxes are indeed very high in NJ. If I may be so bold, whereas usually I tend toward a more consultative approach ...

You NEED to really run the #s, and factor EVERYTHING in that you can imagine. You NEED to know exactly how depreciation and write-offs will work.

You are not so much "buying a home" as you are "Starting a Business". It's ALL about the #s. Let's say that you closed at $600K (579 plus closing costs). At 20% down, you are mortgaging 480,000. So that's about $2150 per month. Would 2 of the 3 units bring in MORE than that - IF they are both vacant 1 month of the year? And you are only bringing in a "reasonable rent - not close to the rent that "you would like"?

Heck, property taxes alone is $1167 per month - and that WILL go up since it's NJ. And then we've got homeowners - about $1000 per year. Plus, plus, plus. I can't see how the #s would work on this one ...

Personally, even without knowing all the stuff that I would want to know - I would likely NOT invest in a New Construction Multi-family. The price will be a premium and the taxes SURE will be.

See if you can find a nice solid pre-existing multi-famly. Some are marketed as single family - so keep your eyes open. This is a great time to buckle down and really learn everything that you can for the next month - WHILE you keep looking.

Then ... you will be ready when you find the right property. An agent that has some background in finance would be helpful for you. But .... you also really need to have a relationship with an accountant also - at least to start off this grand adventure.

If you don't need to live up there, and CAN move - then PA is far better from a tax standpoint (property AND state income tax).

0 votes Thank Flag Link Tue Dec 29, 2009
Thanks all for your answers they are very helpful. I've come very close to a multi family home that I’m interested in, but the taxes are very high. The home purchase price is $579, 900 with taxes of $14,100. What do you think is a fair offer for a home in this price with this market? The home is also located in Garfield, NJ is a new construction and there is a tenant living in the first floor already.

Also, since this is my first buy I’m extremely nervous and want to make sure I’m doing the right thing. Is the economy at the moment good to buy a multi family home or single family home?
0 votes Thank Flag Link Tue Dec 29, 2009

A multifamily is the better investment. If you live in the multifamily you will have an income from the tenant to help with the mortgage. If you decide to simply rent all the apartments they should pay the mortgage, taxes, and insurance for the home. If you keep the home for many years you will see that it increases in value while your tenants pay down the amount you borrowed. A condo does not increase in value as much as a multifamily does. Condos experience increases in maintenance and at times there are assessments by the association and this changes your numbers quickly. If rents don't increase at the rate at which expenses increase in a condo complex you will be at a negative cash flow.
I own both a condo and multifamily as investments and even though the multifamily is in a less desirable area than my condo the value of the two family increases at a faster rate than the condo does.

Good Luck. Any further questions you can give me a call at 201 359 4560.

Andrea Gizzo
Broker Associate
Prominent Properties Sotheby's International Realty-Tenafly
0 votes Thank Flag Link Sun Dec 27, 2009
Hi Eva,

First, Barbara knows what she's about and has put together a lot of concepts for your consideration. She's definitely not just making all that stuff up. I'm a landlord with a 3-unit property and live on-premise in one unit.

Strictly speaking, a multi-family home is a better investment, especially if you live in one of the units. The #s can be just fantastic in this model. 2 units can pay the entire mortgage for your unit, perhaps even more.

Yes, there are tax considerations but those are to your benefit as you'll be able to depreciate the portions of the property that are rentals. You'll also be able to write-off lots of stuff that you do to the property, whereas a normal homeowner can't do this.

Your mortgage rate will be slightly higher as a result - about .25% So, this will also limit what banks you talk to. most lenders deal with single family, not multi-family, and so can't help you at all or their rates are terrible. Wells Fargo is one to talk with for sure - directly.

Your home-owner's insurance will also be higher, but this need not be horribly so - provided that you talk to the RIGHT insurance companies. In my experience, you will only want to talk with the very big direct one's like Liberty Mutual, State Farm, All State, etc. Otherwise, you'll get very high silly quotes for homeowners. Geico was a waste of time as they don't directly do homeowners.

Living on premise has other benefits - you decide WHO you rent to - period. Your advertising must be standardized to avoid breaching fair housing laws. But when you live on premise and have 4 units or less, then you get to make the call as to who you rent to - or don't rent to - for ANY reason that you like.


0 votes Thank Flag Link Mon Dec 21, 2009
The best answer is to first consult with a good accountant. Why? Because it involves tax benefits and how you structure your finances. If you don't understand this, you're bound to make a purchasing mistake.

For example, if you were to buy a multi family, would you live there? You can't do that with a condo and that could be significant. Also, what's your budget? Your budget may determine what you can purchase. If buying a condo, a 2 bedroom unit is normally your best bet but if you're buying a large townhouse then 3 bedrooms rather than 2. Condo's have maintenance charges that are structured; multi families have maintenance costs as well and this also involve budgeting for the future. I advise my clients to have on hand 3-6 months mortgage payment for emergencies such as needing a new roof or furnace and for vacancies.

What I'm saying here is that you must fully understand both the tax implications and the ownership implications of a condo and a multi family. Regarding your responsibilities as an owner, you'll need a good real estate attorney who's familiar with investment properties to advise and help you as well.

Financing plays a part too - the size of your down payment is a factor because it determines your mortgage along with your credit history, etc. and it effects your rate of return. Here you may wish to get a multi family and live in it a while so that you get a homeowner mortgage rate rather than a more costly commercial property loan. This alone may determine what you buy.

Also, if you don't live there, your insurance costs will be higher. Another item for you to consider.

As a general rule it's better to purchase a property with a diversified income stream and that means a multi family. In a condo all the eggs are in one basket; with a multi family if one unit is vacant the other is giving you income. At the same time, multi family homes are often more expensive to buy.

There's also the fact that some condo buildings have had a very tough time; discounting has been tremendous. With the right down payment, you may be able to rent out such a unit for a few years and get a much better than average return.

I have always felt that a 2 or more family home is the best way to go. If you're a first time home buyer, I'd suggest a 2 family where you live in one unit and rent out the other. This is my personal and professional opinion but each person's situation is different. This is why my best advice is to consult with an accountant before you do anything so that you can learn the tax issues as well as how to analyze a property for it's value to you. Hiring an account to teach you these things is, initially, more important than the actual purchase itself. This really is the right answer.
0 votes Thank Flag Link Mon Dec 21, 2009
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