How should I live?

Question

I am wondering how all you RE Investors live. As in, do you rent or do you own while investing in real estate? My husband and I have been living with his parents rent free for 4 1/2 years now while I started a retail business. We are now ready to move out and we know we want to invest in real estate. We live in Southern CA so the price for a small 3bd 2ba single family home starts at $500k. The ones we like are $600k+. The decisions are endless and I just want to make sure we make the right one. Financially speaking. We could buy a less expensive Condo and deal with HOA's, or we could buy a single family fixer upper and live in it while we fix it up? Or we could rent a condo and save up lots of money to buy out of state rentals?  We first need a place to live. Any advice would be very appreciated!

George P. · Answer

25 houses later i still live in 1k sq ft house, 3 beds, 2 kids.

David Faulkner · Answer

I grew up near Santa Margarita and am now in HB. I can give you gory details over PM or with you and your husband in person on what I did, what worked and what didn't. Also, you should talk with @Joe Homs as he is an active investor, lives near you, and will steer you right direction for the cost of one decaf hazelnut latte. Finally, there is an informal RE investor meetup in Lake Forest every month you should look into.

Basically, I'd advise starting local with "house hacking" your own primary residence if you can. I respectfully think that all these newbies wanting to start out investing out of state with turnkeys are stepping over dollars in state to go pick up dimes out of state and they don't fully understand or appreciate the risks of this strategy. Personally, my ideal strategy for noobs would be waiting until the market tanks, buying 1980s beater SFRs from the bank (REO), tile roof, stucco, 3br 2 ba, ~1400-1600 SF, no HOAs, smallest, crappiest, least expensive house in a good neighborhood ... moving in and fixing up, then after ~2 years turning it into a rental if the market is bad or selling if the market is good. Rinse, repeat. This is my ideal, but sometimes you need to take what the market gives you, what your situation affords, and adjust your strategy accordingly.

If your preference is to flip, stay right where you are. If your preference is to buy-and-hold, you may want to look at moving inland (e.g. Riverside county, etc.). If after you cut your teeth on a few of those you decide you want to parlay those capital gains for cashflow out of state, then go for it (but very carefully)... at least then you'll have some hands on buying, rehabbing, and renting experience under your belt and more than a few bucks in your pocket. I've done both for the last 12 years, all buy-and-holds, both in and out of state, no flips (yet).

Kathy Henley · Answer

@Hala Helstien

Can you find a transitional neighborhood and swing a hammer?  Any homes with an in-law apartment? Duplex? Let your tenant help you pay the mortgage. Buy a starter that will become a rental. California investing is a challenge, ties up a lot of money.  Do you know about the 1% rule?  That $500,000 single family home that you mentioned should bring in $5,000 in rent, to be worth considering.  That is why I invest out of state, money goes farther.  But I am old.  You are young and strong.  Fixing up a place and forcing equity may bring value and education. Then you can trade up and move out.

Get busy.

Jack Butala · Answer

@Hala Helstien

Great string.  One of the worst mistakes I see new investors make in real estate is buying a primary residence and thinking its an investment.  I wrote a blog in the this topic here.

Take the money you would use to buy a primary residence and buy a small apartment building and/or learn to source super undervalued property so you can wholesale it to someone in the market.

I would rent as long as you can and then buy a home later in life with cash or with a very low LTV.  Hope this helps.

Melissa Gittens · Answer

@Hala Helstien I would suggest house hacking with a multi family home. If they are not prevalent in your area then purchase a fixer up that has the potential to either rent rooms in the basement or has livable space that you can rent out or enclose away from your own personal dwellings. You can fix up your space as you live rent/mortgage free.

Hala Helstien · Answer

A big thank you to all these responses! I really appreciate the advice. I am curious to know your personal situations. Do you guys own or rent currently?

As to the money saved up from no rent for 4 1/2 years, we don't have much because I started a retail store. I started making money after 2 years and it took 2 more years to pay off the debt from the store. So we just started saving money for a down payment.

I think our best bet would be to buy a SFH fixer upper and live in it while we fix it up. Maybe rent out a room or two. We're so eager to get started!!

Jo-Ann Lapin · Answer

Loaded questions. Only someone that has you full financial packagage can perhaps answer the question.

Mike Hurney · Answer

@Hala Helstien 4 1/2 years of rent free, I'm thinking you probably saved enough for a significant downpayment....

So, I'd suggest you purchase a 2,3 or 4 unit, that needs some work, fixup the one you live in, then move to the other, fix that up. Now you've got increased rent and equity to refi for some cash on another.

Joe Homs · Answer

@Hala Helstien

Welcome to BP. There is a local meetup in Lake forest every month except for December that you should check out. http://meetu.ps/2QWCkh

If you would like to meet up before then and talk about  investing let me know. I am in Mission Viejo and can meet at a  Starbucks.

I am currently flipping homes and am current searching for my next project at the court house steps.

Jeff S. · Answer

It all depends on your personal situation and market, but one option might be looking at SFHs that are large enough and "workable" to where you could rent out a room.

I don't know too much, but I think there's kind of a market for renting rooms to older/single/isolated people who feel safer knowing somebody is around just in case.

Might not be a "forever" lifestyle, but if it helps you get started...

How should I live?

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