I think I know how I wanna get starting...but not really?

Question

Brent Coombs · Answer

@Caraleigh Thomas, welcome to BP. You've found the right site for that very good question. Be prepared for varying responses. You're at liberty to treat them all with a grain of salt.

1. "Do I do what makes me FEEL more comfortable because it’s familiar; and rent out my house, buy a bigger more expensive house that has potential to rent out a little casita that’s attached to the house for added income?"

Are you of the "never sell real estate" school of thought? ie. Why not sell your primary? I'm not suggesting that you do, but, I am suggesting that you come up with the right reasons not to.

Having said that, it looks like you are getting a good grasp on the various pros and cons of different strategies. I certainly approve of your "feel comfortable" goal, and as you keep learning, maybe the definition of what will make you comfortable will change.

For now, I'll just wish you all the best for your RE journey. Congrats on having good options!...

Ali Boone · Answer

Well, not to get all....spriritual...about it, but I think it's time you stop listening to everyone else for a minute and listen to yourself. Of what you've heard from other people, what resonates with you? What stands out over the rest of the options? Which ones seems like something that you'd be excited to do? Once you start narrowing it down based on what fits for you, then you can go back and start listening to people who are doing that same thing explain more on how to do it.

People will give you advice all day long. My favorite quote of all time- "Don't take advice from someone you wouldn't trade shoes with." Going with that premise will take you a long ways.

Jeffrey Isenberg · Answer

A great way to get started would be with a 2-4 unit to minimize the risk for a first time investor.   At 42, you have a comfortable timeline of 15-20 years to take advantage of significant capital appreciation right here in the Southern California Market while maintaining positive cash flow as you build your portfolio.

You may want to reference the blog on my profile page that details a first hand account of getting started in multi-family and where that can lead.  Keep seeking advice and you will find the right fit for a starter investment.

Dan H. · Answer

Typically your home and next home will not make the best investment property.  this is because they are purchased to be a nice home for you and your family.  They also are typically SFR.  SFR in San Diego have negative cash flow if using market value, highest investor LTV (80% LTV), and current interest rates.  So any profit would have to be achieved via property and rent appreciation.  I have a lot of confidence of on-going short-term rent appreciation (next 5 years) but less confidence of significant on-going property appreciation (I expect a leveling off but am not real confident of any prediction).

High end homes (bigger and more expensive) have worse cash flow than middle class or working class homes.

Note a small multiplex or your 16+ unit will experience similar rent and property appreciation to your SFR and have better initial cash flow (it will be poor initial cash for San Diego but increase with the rent appreciation).

To summarize, SFR are not the best buy n hold investment option in San Diego.  It may provide a great ROI but it will be via appreciation as the cash flow will be less than multifamily for the value.  The multifamily will have better cash flow and similar appreciation.

Good luck

Brent Coombs · Answer

My next question is: How much would your net cash flow from your current primary represent as a percentage of its value/equity? [Yes, I know that doesn't include future appreciation].

The reason for that question is: Could you find a better percentage ROI elsewhere, by selling it?

[As a general rule-of-thumb, ex-primary homes reap very poor cash flow, compared to pure investment buys! But, their better-than-average appreciation can often be their saving grace]...

Matthew Perry · Answer

Stick to what you feel comfortable with. There is no right way to do this thing we call real estate investing, it is more the best way which is whatever works for you. You have a good sized egg from which to start but the question is what happens if you lost 50% of it? 25% of it? 30% of it? All of these things come with different risks, but in truth it comes from what path you want to create for yourself. It sounds like you know exactly where you want to get to so I would stress one night just sitting down with a legal pad and at the bottom writing down where you want to be and then work from there and that is your plan. What I would do is different from what you would do, and there is not anything wrong with that at all. Sometimes it is best to just start small and watch a runaway snowball grow from that.

Best of luck.

Dan H. · Answer

Let's assume your cash flow calculation is accurate and took into account all expenses (PITI, vacancy, maintenance/Cap Ex, miscellaneous, etc.).

There are a lot of ways to value cash flow.  In San Diego, positive cash flow on SFR is achieved by having large equity holding.  There is nothing wrong with this if the large equity holding has been achieved via appreciation which is the case in your instance.

However, the same equity value would have a greater cash flow if utilized on a multi family.  The multifamily also would have about the same appreciation as the SFR (property and rent).   To me what determines a good investment is how that investment performs relative to other investment options.  I have confidence that you would achieve a better ROI with multifamily than your SFR.

Have you considered house hacking a detached duplex with each unit having its own yard?  No idea how big your family is.  Unfortunately most detached duplexes are smaller homes (our largest is 4 BR/2 BA but most are 2 BR).  House hacking would remove the large down payment required.  However you may want more space than can easily be found in a detached duplex.

Good luck

I think I know how I wanna get starting...but not really?

Most Popular Reply