Personal Residence Advice

[David Gjeldum]

Hey everyone...

I've been reading all I can get my hands on REI since I was a teenager... Taken a state Real Estate Licensing course and a couple broker courses... but nothing has "fed my appetite" like BP!

I am looking at getting into the market soon. I have some money (low five-figure) to invest in a personal residence, and I also have a smaller amount to invest in whatever I choose.

The key here is that I have some money for a personal residence. I cannot do anything else with it (request from a family member). I am trying to make the best of it by buying a property that can generate cash flow down the line...

I'm wondering what to do here... buy a condo? A SFH? Maybe a duplex and rent out the other side? What is the best form of RE to rent out?

Thanks for any and all replies!

[Bryan Hancock]

I would steer FAR clear of condos if you are planning on using the property as an investment long term. The HOA dues on those things are borderline extortion is some cases and they don't hit the meaty part of the bell curve for future sale.

A SFR REO purchase or short sale would be a decent idea if you had the cash to buy it quickly. I would lean more toward a subject-to purchase that you can later refinance after appreciation has given the lender some security interest.

I really don't like duplexes or fourplexes as an investment. They have all of the pitfalls of SFRs (bad cap rates, low returns for buy and hold, etc.) and none of the appeal of SFRS (appreciation potential, plentiful pool of buyers, great debt products, etc.).

For your first house I would recommend buying a subject-to purchase in an area you are willing to live in for a while with good schools. When the house appreciates in several years (hopefully!) you can refinance the sub-to note and save yourself a bundle of cash that you would have stuffed into a traditional closing.

The "best" form of real estate to rent out really depends on what you are looking for. The SFR in a nice school district will rent better than the cashflowing MFD in the seedy area of town. The former is less brain damage, risk, and less money. The latter can keep you up at nights (how do I know that?), more risk, and more cash flow.

You have to choose your risk/return profile and whether or not it is more important for you to buy an investment that will produce cash long term or if you like where you live. Keep in mind that the SFR in the nice area where you can't build anymore will appreciate more than the other product. Just know that you are banking on appreciation, which is ultimately beyond your control.

Hope that helps some...