Need help with Investment Strategy

[Ben Curtin]

Hello BP,

I'm a relatively new member here, but I've been interested for a very long time, and especially making money with real estate. 

I'm 24 yrs old with a beautiful wife and a soon due baby, and I have a day job as an airline pilot. I'm renting an apartment right now for a pretty costly $1200/mo.

My 10 year goal down the road is to be living in a single family home, and own a bunch of rental properties creating income for me in the Seattle area where I live. 

Now, I'm making pretty good on my plan so far, taking the necessary steps to obtain my first rental property. And I'm sort of at a standstill right now because of the sellers market. 

I have been looking at getting into a fourplex/triplex, and using an FHA loan to live in one unit, while renting out and managing the other units for a few years before buying my first single family home. But there aren't a ton of fourplexes/triplexes getting added to the market currently so the pickings are slim.

I've found this duplex which needs a little roof work, and overall I wouldn't want to live in the area which it's located due to the distance of my daily commute. But it seems like it has potential. it costs about 110k and it's a short sale, and it would generate about 1400-1500/mo in rental income. And I was wondering if buying this duplex as a NON owner occupant and learning how to manage a property without living there, is a better way to start as opposed to getting an FHA loan on a triplex or fourplex? I suppose it's all in the numbers, and the duplex+single family home for us to live in seems to make financial sense, but I'm nervous about getting into two separate properties as opposed to waiting for one bigger property to come on to the market to get it wrapped up in one mortgage.

What do you guys think? 

[Christopher Telles]

Originally posted by @Ben Curtin:

A problem I foresee with mailers is that usually owners do not live in their 2-4 unit buildings, so mainly their tenants would see them. But it's a good idea that I havn't considered yet. Also, I've seen that FHA PMI cost to be an issue as well on these properties for owner occupying. My mortgage guy says the only way I can drop the PMI is when I reach 20% equity, then I'd have to refinance to a conventional mortgage (costing a few thousand dollars as well).

The question I'm having a hard time with, is: since I'm a renter, I don't know whether to invest in my primary residence first (single family house) and then look for real estate deals, or if I should try to get my foot in the door with a 2-4 unit first. 

 @Ben Curtin

I have a simple view of where I invest. I buy properties that:

1. Have a gain at closing

2. Earn above average yields

I don't care where they are located, who does or doesn't like the area, and whether or not I would or wouldn't consider living in the area. To be candid, I wouldn't live in the area of most of the properties I've own nor would I take my kids with me to these areas. But I don't own properties to enjoy lazy afternoon bbq's at the properties. I own them because they pay me the greenbacks.

Now, IMHO, you are better served by buying a good investment (one that has a nice gain built in at the closing, and earns above average yields) to get the passive income flowing in while your young family is, well, still young. These earnings can be used towards buying another investment property, and then another, and another, and then a home somewhere in between these roll up acquisitions.

Of course there are personal wants and desires in making this choice to buy an investment property 1st Vs a home for your family. You and your wife will need to be comfortable with the ultimate decision you make. Keep in mind, if you do buy a strictly investment property 1st, your kids will not 'need' to be in the family home they're going to grow up in for another 5,6-7 years. Longer if you send them to a private school.