Buy or rent or just go surfing?!?

Question

Good evening all! Or at least where in the world I am it is! I am fairly new to BP, and I am literally giddy to have found such a wealth of information, and people willing to share their knowledge and experience all in one place. Being that I now have all of you good, kind, and savvy investors to tap for some advice, I do believe I shall take advantage... so here is my question in the form of a medium-long and winding story:

I am a bit of a slow bloomer in the area of adulting... I have spent my life in the military, and then college, and then traveling for work and for pleasure, and soaking up all that there is to see and learn and do in the world... essentially doing anything but learning to build wealth, and setting down roots somewhere.

Then a few months ago I happened upon my now beloved BP podcasts, and then Rich Dad, Poor Dad, and Think and Grow Rich, and... you get the point, my friends. I am learning to change my ways, my perspective, and my goals for the future... and I must say, it is exhilarating. I feel that in pursuing this new objective, I have learned more about myself and the fascinating world of personal finance in the last few months than I have in... maybe ever. We are talking life-changing, people. And this is coming from a guy who always scoffed at people who talked about this or that "life-changing" book or PODCAST! But it's true! I am beyond excited to apply what I have learned to the task of freeing myself forever from the bonds of debt, and unwanted employment. Someday you will hear my story as told Brandon and Josh on the BP podcast!

But before that happens, I shall offer up my dilemma for you, in hopes that I might solicit some kernel of wisdom from one or many of you kind souls...

I swore after listening to BP that I would never rent another abode again. I have a VA loan available to me, I am eligible for an FHA, and I have about 15k saved for investing purposes. My goal was to find a place to house hack, but the market has gone b-a-n-a-n-a-s where I live in northwest Washington State. With competition so fierce, I am running into a bit of a time crunch... not a good place to be when trying to buy a smart investment property. You see, I spend the major part of my time working overseas (5 weeks out/3 weeks home on average). I've been couch surfing (read: bumming) the last year when I am back in the states, and I am incredibly grateful to my kind friends and family, but I can't tell you how old this is getting for all involved.

So I decided to settle a bit for now, and find a reasonable home to live in that allows me to easily cover the mortgage, and at the same time continue to save more, and look for another property to buy and hold. I have a home in mind. It is a small, well taken care of beach cabin, two blocks from the beach, in a great summer vacation area... winter not so much. I need a turnkey on this one, or nearly so, as I just don't have time or money for major renovations right meow. This means I likely won't be buying a killer deal, but I will still be paying a low-ish mortgage. Less than $1k/month including insurance and taxes is what I am shooting for. In a year or two I would want to either rent it out, or Airbnb it. I feel that we are at the top of the market or damn near (like I have a clue what I'm talking about), and so I think I would have a hard time getting out of it within the next 5-10 years with any worthwhile profit. Or, in the end, is it just smarter to rent, not lock myself in, and buy myself some extra time?

I sincerely thank you for accompanying me on this little journey, friends, for the lending of a sympathetic ear is counted among the finest things on earth.

Clayton Swansen · Answer

@Dan Call, @Brent Coombs, @James Wise, and @Braden Coast, Thank you all for your generosity in sharing your individual perspectives on this. I am truly grateful for the insight!

Dan, I am certainly on the lookout for a killer deal, and have had a couple in my sights, but was unable to compete with the buyers that were willing to pay well over asking price. One was a great turnkey four-plex, that would have allowed me to live completely rent free, but alas... I could not go any higher than the offer I put out. I have since been on the lookout for another multi-family, but either the numbers don't work out, price is too high, or my offer gets bested. I am not terribly worried about this, as I know I will find my deal eventually, but as I stated in my original post, I am in a real time crunch. I need a roof!

Brent, I hear you loud and clear, sir, and you lay down some solid advice and words to think on. Thank you again!

James, you echo my thoughts exactly. I NEED a place to live, and if I am purchasing at a price that is well within my means, then at least I have a home, and I am also paying myself (for the most part) instead of paying someone else's mortgage. In the end, I own the house, and can rent it out for at least the amount of the mortgage. In the summers I can rent it for even more.

And last, but not least, Braden, thank you for your reply as well! We are in the same boat, my friend, and it may be rocky right now, but it's headed in the right direction!

James Wise · Answer

@Clayton Swansen I don't buy into the notion that you absolutely have to buy a house that would also make for a cash flowing rental. You have to live somewhere right? Might as well pay yourself every month as opposed to paying someone else.

You are able to get into this home for zero money down as you have a VA loan and your mortgage payment is only $1,000/month. Hell, you can end up working at Taco Bell and still afford that monthly payment.

So whether the market goes up or down I don't think it really matters. We are talking small potatoes here. Your risking zero cash, an irrelevant monthly payment and providing yourself shelter. Go for it. A few years down the road when you want to buy a nicer house you can either sell this or put a tenant in there. Even if the property doesn't exactly "cashflow" who cares? With only $1,000/month as the monthly payment I would imagine it'd be pretty close. If you end up paying a couple grand a year, no biggie. Let's not forget that you now have a tax shelter and you still have a tenant paying down your mortgage while you can sit back and ride the waves of the market.

Brent Coombs · Answer

How much would rent cost you otherwise? Get what I mean?

The idea is to buy/maintain for LESS than the cost of rent. That means that your mortgage should be no more than about a half of what your rent would otherwise be, because the property's other expenses will also be about half that rent cost too.

But if you DO pay market price, and there IS a down turn, you know where that leaves you?

But remember, renting is a form of debt too - so either way, you'll likely be a long time "freeing (your)self forever from the bonds of debt, and unwanted employment". Read up about "BRRRR".

It is a pity you didn't have this epiphany 5 years ago - but, we ALL have to move forward from - TODAY! Firstly, I expect your SAVINGS regime to increase dramatically! From Now!

All the best. And thank you for your (past?) service. Cheers...

Dan Call · Answer

@Clayton Swansen,  The choice is yours my friend.  There are a great many paths that you can follow.  The first piece of advice that I would offer up is to really get an understanding of what your exact goals are, and then be specific about defining your investing strategy.  (though it will surely change overtime)  Once you have done that, I would suggest that you geek-out on learning your market.

Although history shows that RE will appreciate over time, speculating and counting on appreciation can be a dangerous strategy. (Especially, if you are only talking about 1 property in 1 area)  Again, define your area and know it cold.

You posted:

"I need a turnkey on this one, or nearly so, as I just don't have time or  money for major renovations right meow. This means I likely won't be  buying a killer deal, but I will still be paying a low-ish mortgage."

If you are not looking for a killer deal, then why waste your money.  There are a ton of great deals out there, if you are going to be in this for the long haul, hit pause on dropping $15K on something your not sure about, and further your education. (which you are clearly doing by being on this site).  Additionally, you stated that you read Rich Dad Poor Dad, ask yourself if you think it is the best strategy to buy a primary residence, at market value ("not a killer deal"), live in it for a few years and then hope that you will be able to rent it out for more than your mortgage (and still cover CAPEX, taxes, insurance, property management, vacancy, legal fees, evictions.....etc)

Also, keep in mind that you can buy up to a 4 plex with a VA loan (as long as you occupy one of the units for a few years).  Given that you said you don't have the time or money to fix one up, perhaps you can pick up a 4-plex in rent ready condition, (at a killer deal) with $0 down, and save the $15K to cover CAPEX until you can build up the cash reserves to cover it.  (Just a thought)

Let me know if there is anything that I can do to add value to your investment goals and plans.

Best of luck,

Dan

Buy or rent or just go surfing?!?

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