Single residential or Mutli-family??

Question

Hey guys, I am looking for my first real estate deal and need some guidance!! My wife and I recently graduated from college and pursued work immediately. I am a real estate agent and she works in the medical field as a speech therapist. We just cleared our school loan debt and are working towards the ultimate goal of Financial Independence. One of our goals is to own a few multi-family apartment units. Our savings rate is high but we haven't bought a permanent residence yet.. 1. because our rent is so cheap 2. because we are weighing the options of purchasing a multi-family apartment or something similar 3. because we are a little bit scared of the process.

Should we start by purchasing ourselves a home, live in it, fix it up and put it on the rental market or go ahead and start looking for a multi-family unit to purchase with the possibility of living in one of the units & using an FHA 203k loan?

Our thought with buying ourselves a home is that we could take out a line of credit to use towards purchasing a multi-family. Has anyone had any experience with this method?

This is my first post on the bigger pockets forum so thanks so much in advance for any feedback!!

Thomas S. · Answer

I would advise you continue to rent and invest in a multi unit. Buying a personal home is a liability and in the majority of cases a SFH is a very poor investment as a rental income property. Initial cost is driven by home buyers making it too high and rent is rarely sufficient to cover expences. SFHs generally have expenses in the range of 50% of rental income assuming the rent is at market.

Benjamin Seibert · Answer

Hey Michah! I went down the route you mentioned on purchasing a house to live and flip while also house hacking it. A friend of mine from college and I went in together and bought a 4 BR house and rent out two other rooms to subsidize the costs. In the meantime, we are also working on fixing it up to sell (~2 year time horizon to sell).

It may work out better for you to just purchase a multi-family unit to live in and rent out the other units. It really depends on your area though. I know for my area, there aren't any multi-family properties so we decided to go with the larger single family house. Either way, as long as the numbers work well and your bringing in equity and cash it can be a good investment. One thing that may be good about purchasing a small multi-family to live in and house hack is that you can typically get in with a lower down payment (where as if you wait until it becomes a true investment you wont typically get in for less than 25% down).

Micah Carter · Answer

@Scott Titus Man, this is great! My wife and I have gone back and forth on which route to take. The thought of a house sounds great and it would be so cool to own our own place, but the MFR offers another platform to generate income. Really appreciate you sharing your experience.

Marc Winter · Answer

Lots of good advice for the investment side.  Something is left out, however.

You are a working real estate agent.  What are you selling--single family homes or multi?

My suggestion is to buy whatever you are selling the most of.  You'll never really know what a buyer is feeling unless/until you go through it yourself.  It will catapult your career in ways you can't even imagine at this time.

You can house hack a single or multi, but if you are really serious about your real estate sales career, be an owner!

Good luck.

Alina Trigub · Answer

@Micah Carter You've got a ton of good advise, consider what @Benjamin Seibert recommends. Always try to use leverage when it is available! Multifamily will take you towards your financial freedom. Do the house-hacking strategy as much as possible! BP is a great place to ask questions, also go to local REI networking events to meet other investors. You'll be happy you did that.

Good luck!

Whitney Breedlove · Answer

I'm jealous of you! My husband and I bought our first house a couple of years ago before I knew anything about REI and if I had to do it again, I'd go back and house hack a multi-family instead. I'm also a newbie, but it seems you're on the right track with either option. Of course it's going to depend on the deals you find, but if I were doing it, I would simply run the numbers on each deal, and whichever produces the highest amount of cash flow I'd go with. It looks like you're in the game for the long term cash flow so I'd go with the multi-family, but it will all just depend on your numbers!

Micah Carter · Answer

@Allan Anderton Our market here looks about the same. The home prices are high and seem to be getting higher. There is a shortage of quality homes in a reasonable price range and the cost to build is still high. We are leaning towards an MFR to start.

Allan Anderton · Answer

alot of this I think would be determined on personal goals of yourself and family followed by goals of your future for example I bought my first house 2 years ago small little 3 bed 1 bath thought great started now i have 1 5 year old terror I already see the drama of a girl in teens sharing a bath room -_- I would give ANYTHING to go back 2 years and buy a duplex "but I cant" sooo I now have great sweat equity built into my home and will be taking a heloc out on it to do my first deal. I am a addict when it comes to deals and look several times a day in my local market and missed some great deals how ever in my market I would suggest a duplex because in my city everyone works at the heart of it and the land here is just used up so its prime rentals either way I go home value has shot up as there is just no more land to build on unless you go out of town so SFH are overly priced so its a ruff cash flow, for me   I will be doing a duplex for following reasons 1 more doors = more safety if a moves out b is still helping to cover my payment 2 its still 1 roof 3 I control the value of said property if I really make it diamonds = raising the rent to the cap it controls the value of said property. I am assuming you want to get a FHA loan which if that is the case MFH would be great as you come in gives you 2 years to rehab both sides or at least yours depending on if tenant moves out refi and move out to your next property and keep the ball rolling the roller coaster is always going to be the first property the first should help pay for the second second to pay for third and so on so forth hope this helps

Single residential or Mutli-family??

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