Need Advice for Transitioning Out of Renting - Single or Multi?

Question

Hello, new member here and am very interested in starting out in REI as I have been reading books, this forum, listening to podcasts, and scouring the market in my area.

My Situation:

• I am 29 years old with an income of around $100k/yr, but it requires a moderate amount of overtime. 
• I will have $25k saved for my first down payment and my credit is good at around 730-740 range. 
• My current apartment rent payment is $975 a month (like a bleeding wound). 
• I am single without any pets or children.

My Thoughts / Considerations:

It really is coming down to either purchasing a single family home, or multi-family home where I am stuck on deciding.

I don't mind doing some rehab to the properties since it will force me to learn how to fix things which I will need to know for the future.

• Decent single family homes are within 120K-135K.I have the option to put down 20% to avoid PMI.
• I have the option to put down 20% to avoid PMI.
• Decent multi-family units that are either duplexes or triplexes are 180K-200K.This would invoke using either FHA or conventional with PMI, and unsure of cash flow stability vs vacancy % as my first property.
• This would invoke using either FHA or conventional with PMI, and unsure of cash flow stability vs vacancy % as my first property.

• I have the option to put down 20% to avoid PMI.

• This would invoke using either FHA or conventional with PMI, and unsure of cash flow stability vs vacancy % as my first property.

I will continue to research these options to see what would be best for me, but am wondering what you think about house hacking vs SFH for my particular situation?

The goal is figure out the best calculated risk balanced with velocity toward my second property. Thanks in advance!

Patti Robertson · Answer

This is such a personal decision to decide between living in a SFR vs a multi.  You said your goal is to have the lowest risk and the best assistance in getting add'l property though. A multi-unit will provide more income, less risk of lost income (because of a higher number of tenants), and will be less labor intensive to manage (whole units vs room rents.)  Don't limit yourself at duplexes and triplexes.  Your FHA loan will fund up to a 4 plex, which should provide you the best value as long as they aren't scarce in your area.

Mike Lukach · Answer

Thank you very much for the warm welcome and helpful replies Thomas and Patti!

I am having a hard time finding any 4 plexes in my area, with triplexes even being rare. Duplexes seem to be listed enough where I'd have a chance at finding a deal.

I have reached out to a broker via loopnet as an attempt to take initiative to ask for deals as they may come up, but from the looks of it it seems like my choices will be mostly between SFH vs duplex and MAYBE a triplex.

I can find many other multifamily units outside of my living radius where I will be looking into after my first purchase to live within a property. I feel very stuck with "the 1st deal" since it will be a home, and not just a house.

Thomas Sutton · Answer

Hey Mike welcome to BP! After browsing the MLS in your area it looks like the rents are really good (high) in your area when compared to the purchase price. If you're good with house hacking it looks like a great area! I also agree with @Patti Robertson get as much scale (units) as you an to protect you from vacancies and give you some extra cashflow.

Alina Trigub · Answer

@Mike Lukach

Welcome to BP!

If you already have a strategy identified, then go for it! It's much better to start taking action versus staying in indecisive mode forever. There's no right or wrong decision. There is such thing as trial and error, but it only adds valuable experience to your list of achievements!

If there is anything I can do to help, feel free to PM me.

Mike Lukach · Answer

Whoops

Mike Lukach · Answer

@Thomas Sutton Yes, I am definitely keeping an eye out for duplexes and might have to comprimise by obtaining a duplex rather than a triplex or quad.

My long term goals at the moment are to move into a place I can call home, and then start saving for a small multi within an hour drive away inside the city. After that I would like to get into commercial properties if they provide a better cash flow but I still have much to learn.

I have recently read a book called "Straight Path to Real Estate Investing" by Kris Kohn, and that makes me think to consider single family homes with lease-option strategy.

Thomas Sutton · Answer

@Mike Lukach Yeah, triplexes and quads are ideal but, the right duplex deal could still be a winner for you if you buy it for the right price, in the right area, and use it as a means to reduce your expenses to continue saving. Do you know what your long term goals are in REI yet? Are you looking to buy larger multifamily, get into commercial properties, build a portfolio of small multis, etc? I ask because you're a somewhat high earner so with some saving and a little extra income you can probably be making a much larger investment within 5 years or so. Not, that a small multifamily couldn't or shouldn't be a part of that strategy but, i'd keep the end goal in mind. Hope this helps! I'm just starting out too!

Need Advice for Transitioning Out of Renting -> Single or Multi?

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