Newbie Investor Question

[Josh Harris]

I'm looking into getting into real estate investing and have come down to two different investment options:

1) Is it worth using your entire savings for a FHA down payment on a duplex/triplex to house hack and taking out a small personal loan for minor upgrades (new appliances, paint, etc.)? The properties being considered are in great areas of Chicago where rent is high; however, real estate & property taxes are expensive. Nervous about no reserve cash in case of damages/accidents.

OR

2) Invest out of area, in a more affordable market, where I can afford a 20% down payment and hire agents, contractors, and managers to handle the rehab, leasing, management? I could afford the project but would still have little in reserve once finished, and wouldn't be able to be as hands on due to distance.

Thanks for your help.

[Cassi Justiz]

If possible, I would say it's going to be most beneficial to house-hack in most situations. HOWEVER, do not use all of your savings to do this. You are not going to want to go into a new house with no reserves. You also don't want to count on getting a personal loan, because after your home purchase your debt/income may not qualify for that personal loan anymore. 

So, I would live as cheaply as you can for a while so that you can save enough money to have about 6 months of mortgage payments in reserves when you close on your multifamily property. 

IF you can't find something that will work once you have a large cash reserve built up, then by all means start looking into out of state investing. But being able to decrease your living expense and cashflow your primary residence is going to do a lot more for your personal financial situation than cashflowing $200/month on an out of state rental.