R.E. Newbie; Buy/Live in SFR or MF?

Question

Hi Everyone,

This is my first post on BP, but I've been reading posts and articles for a while now. Anyhow, here's the scenario: I'm debating on whether or not to make my first RE purchase 1) A 2 or 3 Unit that I would occupy and rent, or, 2) A SFR in an up & coming area, which I would live in. I'm trying to not make the emotional buy, but it is the type of space that I've always wanted.

About me:

- 36

- Single (long-term GF)

- Upstate NY

- $60K Annual Income

- 0 Debt & 800 Credit

- Around $100k in savings (liquid)

- Currently renting for wayyyy below market ($800 split 2 ways, Utl included, garage, 1,500 sqft)

The SFR is $150k w/ property taxes of $3000. That said, it's currently assessed very low, so it's likely that taxes will jump in the next few years considerably. This property is in a "hip" area, and may see appreciation in the next 5 years. It's an 1,100 sqft loft style home, with a large garage on the first floor. It was fully rehabbed 10 years ago, so maintenance shouldn't be too extreme. If I chose to move from here after buying it, I think I could get enough rent to just barely cover the mortgage, tax, and municipal utilities ($1,200).

An example of the MF I'm looking at: $170,000, 3-Units; 1 3br, 1 Studio, 1 2br, with $925, $550, and $1,000 rents respectively. I would occupy the $1,000 unit, leaving $1,475 in rents to cover the mortgage. Owner pays heat and hot water. This property seems less likely to appreciate in value than the SFR for a variety of reasons, but would be seen as an asset by most regardless of that fact. I estimate that large repairs aside, the 2 rents listed above would cover my mortgage, tax, and most of the included utilities.

I would be looking to use a 10/1 ARM for either purchase, but am open to other options.

PS: I'm a car guy, and having a garage means a fair bit to me. That said, I'm not naive to the fact that i could simply defer that requirement for a year or two in order to position myself better financially.

I need some guidance here as a first-time buyer, and would appreciate any input. Thanks

Aram Kuzmak · Answer

Thanks for that. The idea isn't to quit my day job, but instead to eventually need it less, if that makes sense. My initial goal for my first purchase was to have someone else pay my mortgage quite simply. Investment wise, the Owner-Occupy 3 Family is the smarter move I think, but the SFR in question is one that I've been wanting for a while. Knowing that I can later rent the SFR for enough to cover my costs, does that make it a decent move?

Do you recommend FHA even for those who can afford a higher down payment?

Brandon Sturgill · Answer

@Aram Kuzmak It's all relative...and each has positive benefits. I've done both successfully, but am a fan of MF because it just makes more sense in the long run. You can use FHA for either and get in pretty cheap. It also depends on your long-term goals. If you are simply investing for sport and keeping your W2 job indefinitely, you've got plenty of time to acquire SFR and MF assets. If your looking for a quicker exit and more passive income, MF is the best option...

If I had it to do over again I would have done an FHA live-in on a 4-unit for my first investment...I did a FHA on a SFR HUD home...in at $77k (60% of ARV), $10k renovation, used the equity as collateral and did a new construction project, refinanced, sold the new construction, made $25k net, pulled $30k in a HELOC from the primary, moved, rented at $1,200/mo. and appraised in the high $130's right now...so, it worked well...good renter...still equity there.

R.E. Newbie; Buy/Live in SFR or MF?

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