Starting The Investment Journey

[Danny Vu]

Hi everyone! I've been really diving into real estate lately and wanted to get your opinion/advice on starting the investment portfolio. I'm not new to investing, but am new to real estate investing. I have been trying to read a lot, study the market, listen to podcasts, etc...

Long story short, my wife and I purchased our first home in 2019 in Orange County, CA and are coming up on our two years here this summer. Our home value went up substantially, and we are considering on selling come summer time. We have our first child who's expected to arrive next month, and all I can think about is the future. 

I have contemplated on renting out our property, but I believe right now is a prime time to sell our place. We initially purchased our home using the VA loan (I'm a USAF Veteran), and would use it for our next property as well since we refinanced over the summer.

My question to you is, if you were in a position with a decent amount in equity, would you:

A) Rent out the property.

B) Sell and use the equity as a down payment for another property.

I want to pick up a little fixer-upper for our next home, but the buyer's market is a little crazy right now. If we sold our place come summertime, we do have a place to live for the time being until another property is found. 

I talked to my wife about using the money to get ourselves a rental property, but really don't know which direction to take. 

This place seems like a great place for networking and ideas so any input is greatly appreciated.

Thank you!

[Danny Vu]

Originally posted by @Doug Spence:

@Danny Vu Congrats on the huge equity increase. 

Here are my thoughts:

Just because the value of your home has gone up, doesn't mean its a good time to sell. You would make a big profit by selling in a hot market, but you'd also have to buy (or rent) a new home at the top of the market, unless you get creative and buy a property that needs some work, but would still qualify for a VA or conventional loan. If you were to sell your current home and buy a 2-4 unit property with your VA loan and house hack, that could be a good strategy and good reason to sell. But that may not fit your family needs right now.

Also, remember that the transactional costs of real estate are high. You will pay 6% commission to the buying and listing agents, plus closing costs. That is not insignificant.

My questions:

Do you plan to stay in Orange County for a while? If so, why not just stay in that home and look to invest in real estate in other, less expensive markets. I live in San Diego and own properties in Florida, Wisconsin, and Oklahoma (and I'm still active duty). 

If you sold, what would you do with that profit you made? If you end up having to put it right into your next house, then what was the point of selling? Or if you have a lump of cash in your account, what would you do with that money? Can you get a better return on that money somewhere else?

Hi Doug, thank you for your response!

I do plan to stay in OC for a while. We're not in our forever home and our needs/wants have changed. The home we're currently in was a great experience for us as first time home buyers, but we're ready to move on. I wish I bought a house every where I was stationed, but I didn't have that mindset in my early twenties. 

The profit made on the home would sit with us until we could find our next purchase. We were given the opportunity to move into her parents' guest house for an extended stay while we searched/waited out the marked, or rehab the next property.

I've considered investing out of state, but have decided to start locally. The idea of finding the right property manager and dealing with a property sight unseen is still unfamiliar territory for me. Unlucky for me, locally is Southern CA lol.

 Thank you for your service!