Purchase a Home or My First Multi-Family?

Question

Hi! I am a single mom and RE rookie in the SF Bay Area. I am currently renting for 3K a month (i know, it's insane here) and need to stay in this area for the next few years until my daughter graduates high school. I am planning to buy a home when my lease is up this summer for $650K with an FHA loan and 5% down so my mortgage will be about 4K a month. I would house hack, however it's very hard to do that here since everything is so expensive.

My question is should I continue renting and spend my 40K savings on a down payment for a quad somewhere like Cincinnati or use my money to purchase my first home, just to get out of renting? It will probably take me another year and a half to save another 40K to do a deal. Any strategy feedback would be great!

Sean Resavy · Answer

Don’t go FHA. I did and now I’m stuck with $400/month of PMI.  Do a 5% conventional if you can. Stronger cash flow and return on your money. I would advise buying a duplex in an area you can afford like Vallejo. Live in one unit and rent out the other unit. Your mortgage is now halfed. And when you move out you’ll be cashing flowing depending on your rent roll, bed/bath count. And now you have a high priced ($500k+) house in a market that’s appreciating at double digits. Anything in a coastal market is more of an appreciation plan than a cash flow play. The next 10 years will be strong for real estate. The perfect asset class to be in when experiencing a lot of inflation. It’s a true wealth builder. then go 20% down out of state on your next one. Best of luck!

Erick Vallejo · Answer

Hi @Karen Gordon

I am a newbie investor myself so take what I say with a grain of salt. However I am also from Sonoma County and in the same predicament. Yes house hacking is the best cash on cash return hands down, but taking X amount of years to save up for the down payment seems like a real motivation killer in my opinion. After saving for a few years for my first house hack here, I have decided to change my investing strategy a bit and buy cash flow properties out of state. Otherwise I would have to wait another few years to buy that 700k house hack which just doesn't sit right with me anymore. This way I can get the snowball rolling even if it technically is not the best use of my money at this point. The motivation alone is worth it to me. However if you are REALLY set on house hacking in Sonoma County, there's always cheaper small multis (usually fixer uppers) near the Russian river area that go for around 4-500k. Just be careful they are not in the flood zone which is a huge problem there. I am a Realtor in the area so if you have any questions or just want to talk strategy feel free to PM me here. Best of luck!

Jordan Noble · Answer

House hack! Agreed! Take out as much of that sweet sweet debt as you can and let inflation do its thang

Karen Gordon · Answer

@Erick Vallejo thank you for your thoughtful response! let's connect, as i'd really like to work with a BiggerPockets realtor when i'm ready to start looking, which will be in January. would love your help!

Karen Gordon · Answer

Hi all @Marc Rice @Reid Chauvin

@Remington Lyman

thank you for taking the time to read and respond! i would totally do a house hack but it is simply out of my price range here in Sonoma County, CA. i'm working with a realtor to potentially find a property with an ADU in the back but it's not likely I can do that here. @Marc Rice i think that i'm leaning toward what you said as a strategy but unless i can find a house hack that works in my overpriced area it will just take me a longer time to save up the money for another deal, which may just be what needs to happen.

Reid Chauvin · Answer

You are going to have to put 25% down on a multi-unit property if you are not going to be living in it. Not sure that $40k would get you there on a multi in Cincinnati, though I could be wrong.

The low down payment options are only available for primary residences. If you're looking to buy and hold something, I would consider leaning towards a conventional loan as opposed to FHA if you are looking to buy a 1-unit property and can qualify for it - generally a lesser APR on conventional loans. The FHA comes in handy if you're buying a multi-unit property, since it's still 3.5% minimum down payment.

Karen Gordon · Answer

Thanks @Jordan Noble!

Karen Gordon · Answer

@Sean Resavy thank you for your feedback! i was looking at vallejo - unfortunately i can't buy there now because i have to stay within 20 minutes of my daughter's school, but it does look like a good market and there are lots of multis in the area!

Marc Rice · Answer

I like to tell people that a house hack will always be the best cash on cash return in real estate and will give you the best foundation to start investing. You can use that money saved on housing expenses and the increase in home equity to invest a year after you buy the FHA owner occupied.

Remington Lyman · Answer

I would try to house hack locally and then try to buy rental properties in Ohio after that

House hacking gives you the best cash on cash return

Purchase a Home or My First Multi-Family?

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