What would you do?

Question

So I’m new here. I’ve been in a dilema for about one year. I sold my property a few years ago and have about $300,000 from that sale. I’m currently staying with family but I need to find my own place. And, I’ve always wanted to buy a property to rent out and have some cash flow. Also in the long term maybe have 3-4 rentals. Being here in San Diego it’s a tough market. Should I put all that down to find my primary then later maybe search for a rental property? Or is now the time to find that rental and put some of the cash down while also being able to find my primary residence? Is it doable?

I can’t afford too much. I’m looking for about $2500 mortgage (p&i, prop tax, hoa) for my primary.
Should I just rent for now while I leverage that cash to set up my rental prop then find a primary? Or just go find a primary and put all that money down? Not sure what to do.

Sincerely,

Confused

I can’t afford too much. I’m looking for about $2500 mortgage (p&i, prop tax, hoa) for my primary.
Should I just rent for now while I leverage that cash to set up my rental prop then find a primary? Or just go find a primary and put all that money down? Not sure what to do.

Sincerely,

Confused

Julien Jeannot · Answer

@Jimmy Tracks

For me, in that situation given my goals, expertise, and strategy: house hack a multi family (2-4 units.)

Dan H. · Answer

When you exit a market for a duration (in your case 3 years), you are taking a gamble that market does not get far worse for purchases.  The gamble did not work for you as the rates have doubled and prices have increased significantly.

In San Diego, highly leveraged property purchased at retail without value adds have large negative cash flow.  This implies in the near term renting is cheaper than retail purchase.

However, no one knows the future.  What will be the appreciation and rent growth?   Since the rates started going up significantly, I have been conservative in my near term appreciation outlook reflected in my underwriting.  I a currently using -4% near term appreciation as I am expecting near term appreciation to be between -4% and 4%.  In my underwriting, I use the conservative numbers.  I expect rent growth to be lower than in recent years.  These two together, point to a slow increase of cash flow and not much appreciation.

Historically, San Diego has had outstanding appreciation.  I expect in the long term the appreciation will exceed the CPI.

Now to the answer to your questions.  I suspect if your hold period is less than 5 years, you will be better renting (for the crazy RE of the last decade, it took less than 5 years but this was not normal).  For holds between 5 or 10 years, this can go either way on which will be better.  For holds longer than 10 years, buying will virtually always be better than renting.  I suspect this to hold true going forward.

As indicated, I am being cautious.  I have put in some offers in the last 2 years, but my last purchases were Dec 2021 (almost exactly 2 years ago and before the rates went up significantly - I purchased $4m that month).  I expect my RE purchases to be positive much sooner than 10 years and my underwriting is showing the properties to not meet my buy criteria.

Good luck

Jasmin Silva · Answer

have you considered househacking a multifamily property?

Carlos Valencia · Answer

if you have 300K to invest and you can only afford 2500 in payment PITI all in that means you need to at least make 5k gross per month assuming no other debt. You can possibly get a property thats about 600k or less. If you are flexible in moving and are just trying to begin your investment journey I would say house hack is the best way to go. Dont look for your primary at this moment. I would look for a single family or duplex around that price range and house hack. Then rent out the whole house or duplex and try to do it again to acquire your next unit. If you can avoid Condos even better so you dont get stuck with HOA dues.

@Albert Bui @Matthew Kwan

Brock Dowis · Answer

Multifam doesn’t really exist in Temecula. Owning property in SD over the course of time will be a solid move. 4 unit and house hack it? Build up equity for the next rental move when the time comes?

ADU in Temecula/Murrieta area could be an option. I have a friend that rents homes by the room and does well in this area. Would take a long time, and a lot of people don’t agree with burying the capital in an ADU. All depends on what you want I suppose.

Nate Meeker · Answer

@Jimmy Tracks buy with as little down in SD with the intention to house hack and invest the rest out of state. At least that is what I did to grow my portfolio!

Twana Rasoul · Answer

@Jimmy Tracks Depending on your timeline you should either continue renting or based on where you want to be at with payments, I recommend purchasing a 2-4 unit multifmamily to live in one and rent the others.  Even if you purchase an investment in Temecula you likely may not even make the rental payment to pay for the PITI right off the bat as a pure investment

Jake Baker · Answer

@Jimmy Tracks

I agree with the multifamily house hack if you can swing that. There are great financing products for that right now that can be a great wealth builder for you.

Remember... all worthwhile real estate strategies require some sacrifice on your part. If you house hack, you will have roommates/tenants that you have to manage. If you flip, it will require a lot of your time to manage the rehab. Buying a turnkey property and having a management company rent it out for you requires way less effort on your part, but also a smaller ROI most likely.

I think house hacking and buying a primary residence every 2-3 years is the best wealth-building strategy for anyone getting started.

Tim Ryan · Answer

Hey Jimmy,  I say for sure keep renting and buy an investment property. But you'll have to buy out of state. Buying your primary can wait. Start getting positive cash flow and learn the rental business, and buying your own home will be much easier in the future. This is a no-brainer for me to tell you to buy investments!

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