Is multi-family house the right starting point for first home buyer?

Question

Hey, my name is Hansel.

I'm looking to buy my first ever property for investment so I can achieve financial freedom sooner in my life!

Many articles/youtube videos/posts said that Multi-Family property is the right thing to do to build my empire. Is that true?

If so, which city/area should I start looking? I live in California right now where the price is insanely expensive! I don't mind looking in other states too.

If not, what is the better strategy for first time home buyer like me? BRRRR? House hacking?

Please, I need guidance on where to start!

Alexa Ferguson · Answer

Hi Hansel! I think the best way to get started in real estate investing is to house hack. You can put the smallest amount of cash into it and reduce your living expenses drastically with this strategy, so to me, it's the best first step to take to set you up for success for future investments. I have lived in 3 houses over the past few years and house hacked all of them - all single family homes. Reasonably priced multifamily properties are hard to come by in many markets (I am in Denver and that is the case here), so SFH is the more affordable option. By making it your primary residence, you can put as little as 0%-5% down, depending on the lending program. We look for homes with a space that could be separated so we don't have to share space with our tenants. This could be a basement, upper level, wing of the house, apartment over the garage, etc. - any part that can be accessed separately. Denver homes commonly have a separate entrance to the basement, so that is the form ours take. You can then rent this space out as a long-, medium, or short-term rental, based on the strategy you like. We do STRs because they generate the most cash flow and are allowed in our area. We have consistently covered our mortgage for the past 3 years using this strategy! After living in the house for a year to satisfy the primary residence lending requirement, we move out and rent the entire house to start cash flowing. We are on house #3 now and cash flow about $60k/year in total. Happy to talk about Denver or general strategy more if you'd like!

Michael Blank · Answer

I've helped 19-year-olds become financially free through MF investing, before they bought a house. You don't need prior real estate experience to get into MF, BUT you need to educate yourself and avoid common mistakes. What about a duplex or triplex if you're not ready to go in on a larger deal yet?

Michael Smythe · Answer

Buy a 1-4 family property and live in one of the units to get best mortgage rate.

You'll learn a lot by self-managing the other unit(s).

Dan Portka · Answer

@Hansel Gunawan house hacking a duplex is a great strategy for new investors. Its definitely possible in CA because you can leverage owner occupied loan programs with low down payments as others have mentioned. Putting 5% down on an owner occupied property vs 20%+ on a straight investment will adds multiples to your returns via appreciation, its a no brainer when you do the math. Im in LA and there are several areas where I've seen people have success with duplexes and/or SFH w/ ADUs.

Denis Ponder · Answer

I sent you a DM about this strategy.  Thank you.

Darrion P. · Answer

Hansel,

Multi family, 2-4 units are one of many proven ways to become a real estate investor, create passive income, and build wealth. Many of us have accomplished this task, most beginning with a house hack. Location matters, why? Because the rent of the units must cover the mortgage of the building. Consider the price of a 2 family flat for example: price 400k, that mortgage @ about 7% interest rate will be about 2200-2600 p/m. The question you must ask is will the rent of the other unit cover the mortgage. If you qualify for a FHA loan your down payment (3.5%) will be less than if you decide to BRRRR (non-owner occupied - 20%). You may also want to check with a local mortgage broker for 1st time home buyers programs. I know here in Georgia, they vary by county. I applaud you for taking the most important step - that is making the decision to take action! Here's a few more tips that may also be helpful.

To Your Success!

Darnell Lockett · Answer

Hi @Hansel Gunawan. You're talking about buying a MF property in order to live in one unit and rent out the others correct? If so, I think that's a great idea. Get a duplex and rent one side out. You can use a FHA loan and put as little as 3.5% down. If you try buying a triplex or fourplex using FHA, the property will have to pass the self-sufficiency test...otherwise it wouldn't qualify using FHA.

Josh Bowser · Answer

Hey Hansel - If you plan on looking living in CA for a while, you might be best served by house hacking a SFH/condo/town home near where you live now.

Yes small multi family is great, but stretching yourself financially is not. I would recommend buying something in the best neighborhood that you can afford.

Out of state investing is great, we help a lot of out of state clients here in Atlanta. However, most of the time the cash flow of a LTR in a low cost of living area will not move the needle for your personal finances like house hacking in a high cost of living area will.

If you have any questions or would like to chat - my DMs are always open!

Basit Siddiqi · Answer

Brandon turner would normally mention that most high cost of living markets would have a more affordable market to get in within a 2-3 hour drive.I also suggest picking a market that you have some familiarity with.Is there a market that you grew up in, went to college in, visit that you feel like you know well and fits your investment criteria?

Hamp Lee III · Answer

You can also for a property management reference from your real estate agent.

Is multi-family house the right starting point for first home buyer?

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