First Investment - Duplex Rental or STR Vacation Home?

[Chris Troutman]

I have a feeling this is a common question, but interested in feedback on my personal situation. After sitting on the sidelines for the last 20 years, I'm finally ready to deploy some capital and it seems like I have narrowed down to two options: (1) purchase a rental property (preferably a duplex or triplex) for LTR, or (2) purchase a second home (an hour or so away in the mountains or lake) for STR.

Looking for any opinions on pros/cons of each of these options based on the timing and my situation.

Some background: early 40's, divorced, older kids, W-2 employee in the 35% bracket. I own my home, but am about to rent it out and downsize into a smaller rental (kids don't come see me enough to justify larger house). I have ~$50K for down payment and adequate emergency savings. I have commercial real estate background and am handy, FWIW. Not a lot of equity in the house, but rate is 3%.

Option 1: There are a few duplexes within 20 mins of my house that need minimal work but could be improved to increase rental rates. Seems like most would cash flow with 5-15% annual ROI. My understanding is that I would likely need to take out a rental mortgage for this option.

Option 2: Have thought about doing this for awhile now. Since I usually only see my kids during holidays now, I've thought about getting a mountain or lake home to use for 3-4 weeks a year, and STR the place the rest of the time. I would probably use a property mgmt company for this. I think I can get a second primary mortgage for this option. I'd need help finding the property, as I could not do the scouting myself. Bonus consideration, if I don't purchase beforehand, I will have to rent a house in this area for Thanksgiving to host my folks, so that will be money out of my pocket.

There's probably more useful information I can provide, so let me know if you have questions. Thanks!