Home Buying in 07305>Question Details

Homebird, Home Buyer in 07302

I'm a first time buyer looking to buy a 3-yr old three family home in Greenville, Jersey City

Asked by Homebird, 07302 Sat Aug 23, 2008

for about $360,000. The seller, who who bought the house on a short sale, said the house originally sold for $550,000 and other similar houses in the area sell for $480,000. I'm planning to make a 3% down and get a 30-yr fixed mortgage. I was thinking of living in one apartment and renting the other two, something that would help offset my monthly mortgage payments. I understand the area is not very safe. I'm 27 years old and work in the banking industry in NYC. Do you think this is a good investment at this age for me? Any other ideas, please? Thanks in advance!

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I have bought and sold several properties in Jersey City as an investor over the past 8 years including Greenville area in JC. I currently own none as I sold my last property in 2005. As a rule of thumb, your purchase price should not be more than 10 times the rental income you collect. The Greenville area is the not the best area in Jersey city. You will be dealing with shabby tenants who may or may not pay their rents on time. Factor 12% vacancy rates and 12% maintainance in your calculation. Also, don't count on Capital appreciation for the foreseable future as any recovery in the housing market might take a long time and Greenville will be among the last areas to see any recovery. Also, you are 27 years old, and if you plan on starting a family, this is definitely NOT the area to do it. Crime is very high and if you happen to change your mind in the future, it will be very difficult to sell the property. Also don't count on the glory days of RE coming back in our lifetimes. RE cycles are very slow unlike the stock market cycles so don't be stuck owing a bad piece of property. Remember, in RE, Location always matter. If you are constrained by 3% downpayment, then save your money and park your money in a CD earning 3% a year until you see a time come when the risk reward ratio favors you. Never lose money and most of all and most of all don't be stuck in a bad piece of property. People(realtors) say all the time that areas improve over time, but like how JH Keynes once said, in the Long run we are all dead.
There is no such a thing as a bad property. The only thing that matters is Price. As long as yoru property generates Cash from day one regardless of whether you live in the property or not and after taking into account ALL expenses (vacancy, maintainance, etc etc) you have made a good deal.
Hope this helps
1 vote Thank Flag Link Tue Sep 2, 2008
I work in the Bayonne and also Jersey City areas, and Greenville and West Bergen are very nearby to Bayonne. Whether Greenville is "safe" or not is up to you to determine your own comfort level. Different neighborhoods change on an almost block by block basis. With the Ligh Rail coming in this area and many other newer houses, the area has improved considerably compared to 10 years ago. Jersey City as a whole is a wonderful place to live and I have lived in Hudson County for over 30 years, in both Downtown Jersey City, Journal Square Section, West Bergen and other areas. It is home to over 250,000 people. Every area improves over time and if you plan to hold a property for the long term, it is very likely that over a period of 10 years, property values will double.

At one time, about 15 to 18 years ago, Downtown Jersey City was not the wonderful business district that it is today. The economic center was in fact, Journal Square and not Downtown Jersey City. There were many factories that were abondonded, amongst them Colgate.

In your particular situation, you have three factors that make Greenville an attractive choice. First of all,your downpayment is only 3% down, and it's 3% of a modestly priced home. Therefore, your downpayment cash is a limiting factor to buying in a more expensive section of Jersey City, and with the mortgage market meltdown, it's hard to get 100% financing anymore. Secondly, you are looking to buy not purely based on price, but based on price RELATIVE to rental income. This yet another reason people choose the Greenville section of Jersey City as a wonderful area for investment, because in most cases, the prices sellers ask relative to the rents generated, will not even cover your mortgage in many other sections of Jersey City, North Bergen or Bayonne, but this is not the case in Greenville, where price RELATIVE to income gives you positive cash flow. Thirdly, you are buying brand new construction, so if you were to buy the exact same home in a different section of Jersey City, you wouldn't be able to afford a condo for the price of this entire house.

So as long as you feel safe by visiting at different parts of the day, and night and you feel ok about the location, you are making a smart move. The property allows you to be both a landlord and a first time buyer all at the same time. Later on, as the value climbs back to the glory days of the seller's market we had previously, you can either cash out your equity, or keep the property as an income property and pull out some equity and buy somewhere else. This would not be as easily possible in other parts of Jersey City.

Only you can decide if you feel comfortable in a particular neighborhood or not. But, in a business sense, this is a smart move: maximum leverage, i.e: 97% Loan to Value Ratio, Positive Cash flow, new construction, so very little money into repairs or maintenence, and still within a short commute to NYC, a major souce of employment.

Alexander D. Gonta, Realtor Sales Associate
Phone: Cell: 201-988-3282
Exit On The Hudson Realty
808 Broadway
Bayonne, NJ 07002
Office: 201-437-0411
Fax: 201-437-9978
1 vote Thank Flag Link Sun Aug 24, 2008
What I suggest, is to factor in your price, your downpayment and your long term goals. Real Estate is a long term investment, and markets do change, but if you plan to hold over the long term, 10 years or longer, values historically do rise, but they rise at different rates at different parts of the city. If your goal is simply become a home owner, and you are looking at $2500 per month as what you can spend, consider buying a luxury condo in West New York, North Bergen, Union City, and the Heights in Jersey City. You will find many attractive listings from 900 to 1,000 square feet in the $285k-$320k price range. You can use the condo as a stepping stone to home ownership and it's easier to sell a condo, or a single family home than a multi-unit home later in time, when you want to step up to a bigger property.

Single family homes and condos are the most liquid type of properties and offer the best appreciation. 3 or 4 unit properties offer positive cash flow, because you are simply collecting more rents that more than pay your mortgage, but are less "liquid" when it comes time to sell. Your buyer for your condo or single family home is a very large audience pool of potential buyers. On the other hand, a 3 or 4 unit building is likely to only attract investors as buyers, not regular home owners, so to liquidate the property at a future date is more difficult. By contrast, however, multi-unit buildings, although they are more difficult to liquidate, took a lower hit in this mortgage crisis market and commercial properties, (6 units and up) took even a smaller hit during this real estate down-turn. That is because, they pay for themselves and with people having a difficult time buying and qualifying for mortgages, there is a swelling of new tenants and rental market is now more active, so landlords are doing better than in the past.

Is your goal home ownership, or to be a landlord? If you are strictly buying for yourself to live in it, and a 3% down, and not 25% down, the only way to get a 3 unit or 4 unit these days is to live in it. If your goal is to be landlord, I go back to my previous answer. Greenville is like any other market, you have your good streets and tougher streets. You are looking at cash on cash return. That is,how much income a property generates as a percentage relative to downpayment. With nearly zero down, your cash-on-cash return is nearly infinite!!
So if you plan to turn this into a rental property at a future date, and keep it long term, i.e:10 years or more, it's a wise choice.

On the other hand, if home ownership is your primary goal, without the need to be an investor at the same time, I say, pick a condo in a nicer area that is more uniformly nice across the board. Real Estate is not like the stock market, it is a very slow rate of appreciation and depreciation in values, and nicer areas are always in greater demand. You can then sell your condo unit, and park the equity into something larger if you get married and start a family.

It's called leverage: a $30,000 downpayment controls a $300,000 asset. The asset, $300,000 grows 4% per year, not $30k grows 4% per year. You also have the tax sheltering benefits of real estate. You also have depreciation of the building itself as tax write off. So real estate is a unique investment; it offers leverage, appreciation and tax sheltering of income.

Is your goal to be an investor, and a long term player? If yes, this is a good deal: very high leverage, good income relative to price, provided you get steady tenants, and good cash-on-cash return. But you need to be a long term player to see the fruits of your labor. Real estate is all about slow, steady, appreciation, not massive cash flow....it's in equity growth, that's where the money is at. Your liquidity in a 3 or 4 unit, especially in Greenville, over the short term, is poor. But as long as you are a long term player, this shouldn't bother you.

On the other hand, if your goal is home ownership first and foremost, not being a landlord, stick with a condo and cash out the equity growth in 5 years and park that equity into a nice big house down the road. Hope this helps.
0 votes Thank Flag Link Tue Sep 2, 2008
I have been selling houses in Jersey City for years. I think the newer properties in Greenville represent a great investment opportunity. While many of the builders have been hurt in this market, the houses replaced blighted houses with nice new housing. Many turned out to be overimprovements, given the melt-down of the sub-prime mortgage market. Whether you find the neigborhood safe is something you'll have to decide for yourself. Jersey City is a wonderful, diverse city of almost 1/4 million people. The neighborhoods change block-to-block.

I would make the same suggestion that was made to me 30 years ago before I bought my first house (as a 27 year old single manager). Visit the neighborhood at different times of the day: in the morning when people are leaving for work, in the afternoon when people are getting home, and in the evening. This has to be a personal decision, not based on what you've read or heard from others. You'll also see first hand what the traffic is like. (Do the fire engines drive by all the time? Blasting the horns...)

I think you should check to see if the house you're considering is a legal 2-family or a 3-family. If it's only 3 years old, I'd be very surprised if it is a legal 3-family. The Americans With Disabilities Act mandates that, in newly constructed houses with more than 2 units, all units must be handicap-accessible. Unless the house is a total rehab of an older 3-family house, and, thus grandfathered, it is most likely a 2-family. If you are expecting to get a loan with only 3 % down, you will be required to live in the property. And the 3rd apartment is probably an illegal apartment. Many MANY of this style of house has what's called a "bonus" apartment. It's ideal for an extended family. but not legal to rent out, and, thus the rental income can't be counted as income for your mortgage qualification. You should ask your agent, loan officer, and real estate attorney to explain this to you and how it relates to your personal situation. I'm not suggesting that these bonus apartments aren't rented out; it's just not legal and could cause great problems later.

Joan Prout, MBA
Broker Associate
Jersey City, NJ
Web Reference: http://www.JoanProut.com
0 votes Thank Flag Link Sat Aug 23, 2008
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