Fix and Flip or Multifamily for Newbie?

[Ashley Pohlman]

Help! I am looking for advice on what our next move should be... Another Fix and Flip or first time multifamily??

Background: We live and work at an all boys boarding school. So this means we have no mortgage on our primary residence. However, we do own a vacation property in Cape Cod that has done extremely well for us. Renting at $3,100 in prime 8 weeks of summer, as well as pulling in renters for off season. We earn about $55K in rental income annually. Our mortgage and expenses are roughly $25K annually. We are netting approximately $30K annually. I would love to do another vacation rental but we won't have the funds for this type of purchase (likely $350,000 plus) for at least a few years. 

1. Fix and Flip - We just finished our first project which went anything but smooth. It was a huge learning experience, and we will be forever grateful for all of the lessons learned. We are very naive and trusting people, so we had major issues with contractors (had to fire the first one) giving us proper estimates and following through on their work in a timely manner, and sticking to budget. Lesson learned is to NEVER take anyone's word & ALWAYS have a signed contract (that you agree with), and follow it! Ultimately, the property is currently on the market and turned out much better than we could ever imagine. Fully staged and high end finishes. Feedback has been amazing and the neighbors are very appreciative of our work. It is located in Northfield, MA. A quiet town that is on the verge of a boom (college opening up 1 mile down the street next September). I would LOVE to do another fix and flip in Northfield, but am nervous because this property has been on the market for 46 days and still no offers. It is one of the largest and highest priced homes in Northfield, so the buying pool is pretty limited. Also, because the work ended up costing 4 times as much as the original contractor quoted us, we had to dip into our personal savings, retirement fund, and borrow money from family. Both of our credit scores are now hovering around 655 (originally mid to high 700s). Assuming we break even once it sells, or make a little profit, we will be able to pay off all debts and have $60K-$90K back into savings to play with. If we go the route of Fix and Flip, we would likely use an investor (did a rehab loan with local bank for first one), as our credit scores will likely remain low for some time. Any advice or guidance on using an investor vs. rehab loan? I have a few investor contacts I am planning on speaking with, but just not ready for that conversation yet. 

2. Multifamily - I am interested in the idea of a multifamily (2,3 or 4) in which we would Airbnb our "owner occupied" unit and rent out the others. I have lots of experience with Airbnb and VRBO, as I manage our Cape Cod house using these services. Love them. We currently live on campus at school and have no need for another living space. I am concerned about us being pre approved (low credit scores) to purchase a multifamily and do a traditional bank loan, or likely a rehab loan as most of the multi families in our area are in need of updates, and more expensive than a property we could find to Fix and Flip. My other concern is that we will be "house broke" for a while since we will be sinking most/all of our savings into the purchase and rehab. We will gradually replenish our savings with income from renters but not nearly as quickly as we could with a Fix and Flip. Any advice on how to make your money back quickly with multifamily? Would a HELOC work in this case?

Ultimately, I am exploring any and all real estate opportunities to start building my portfolio. I love the concept of rentals and the income that come with it, but the idea of making quick money with Fix and Flips is enticing. I appreciate your comments and advice! Thank you!