Buying a home every 2 years, renting the previous home out, and repeating, good idea?

[Daniel Ben-Hur]

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

[Carlos Ptriawan]

thats my strategy since 2009

[Carlos Ptriawan]

so the way you do it is : buy/rehab primary-->rent it out -->collect lease -->HELOC it---->apply primary with showing the lease so DTI reduced-->continue or sell after 2 years , you can mix/match between the two, basically for every primary, your job is to make sure you have Dscr>1.0 and keep moving.

[Carlos Ptriawan]

please do note fannie mae doesn't allow excess rent income more than DSCR 1.0 for primary house so you can't offset excess income for next primary or to reduce DTI so if you can plan it ahead carefully this could be the most profitable approach with the least risk possible.

[JD Martin]

Quote from @Daniel Ben-Hur:

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

 Depends on if you've bought a house that makes an appropriate rental. Generally that's going to mean buying something under market (per sf) because it needs some attention, fixing it up while you're in there, then moving on and doing it again. If you're buying "you", turnkey homes, there's a reasonably good chance they're not very good rentals. A lot of people don't have a whole lot of interest in living in constant fixer-uppers, so you have to have the right mentality for that.

A variation on it, if you want to live in better homes that aren't great rentals, is to, again, buy homes that are under market because they need some work, do the work, live there 2 years then sell for a profit and keep all of your capital gains. Depending on where you are, do this half a dozen times and you could have $500k-$1mil tax free in a decade or so. 

You don't just want to own 6-7 homes. If that's your goal, you want 6-7 homes that make great rentals - low costs of ownership & maintenance, high ROI relative to cash in the property, easy to rent, etc. A lot of people find that the homes they are willing to live in, and the homes they want to rent out, don't necessarily correlate, so you have to alter one side or the other.

[Carlos Ptriawan]

There're lot more beauty in this strategy to keep buying primary rather than keep buying rental (esp OOS) because you can pay off one house from other home equity within 9 years if rate is low enough and appreciation is twice than mortgage rate. The math here is very beautiful. So don't buy rental but keep buying primary locally... you can even double your networth very quickly buy buying broken-home and flip it around. 

[Mike Dymski]

Yes, I did two live in flips when I got started.  Can take your time on the rehab, do some of it yourself, build your contractor network, get familiar with rehab work and costs, not have to live with roommates (house hack), get owner occupied financing, and get tax free gain on sale at the end of it.  For primary residence #3, we bought in the path of progress; so, not a live in flip per se but similar in that we will get high organic appreciation and also add value through easy rehab such as refinishing floors and railings, replacing fixtures, improving landscaping, upgrading tile, etc.

[Sanjeev Advani]

@Daniel Ben-Hur - I think Bakersfield would be a great place to do this because we have homes that could use some love in good neighborhoods, and then you can add that little bit of love, before moving into the next one.  It makes sense to do it that way and it is relatively passive as well assuming that you are okay with doing some of the work yourself, and moving every 2 years.  Let me know if you have any other questions as well!  Best of luck!  Feel free to PM me. 

[V.G Jason]

Quote from @Daniel Ben-Hur:

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

 It's a great idea in the low debt, moderate supply world. You can't really copycat such principles, you have to think a bit differently.  

You probably can do this every 3-5 years if your houses are turnkey, but likely 5-7 years if they are not. Don't just assume lowest downpayment, next house. Your DTI will get maximized and you'll be short capex & reserves when the cost of capital is going to be higher the next 10 years than the previous 10. Also if you're thinking about having a family, be cognizant of the health of it to keep moving for strategy versus peace of mind.

[Carlos Ptriawan]

Quote from @V.G Jason:

Quote from @Daniel Ben-Hur:

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

 It's a great idea in the low debt, moderate supply world. You can't really copycat such principles, you have to think a bit differently.  

You probably can do this every 3-5 years if your houses are turnkey, but likely 5-7 years if they are not. Don't just assume lowest downpayment, next house. Your DTI will get maximized and you'll be short capex & reserves when the cost of capital is going to be higher the next 10 years than the previous 10. Also if you're thinking about having a family, be cognizant of the health of it to keep moving for strategy versus peace of mind.

the trick is that you move when DSCR in that property is DSCR 1.0 ; so this is the basic concept, once you apply to different primary, they would offset that income to 0.75 DSCR. Also lets say we accumulate 2 primary in 5 years, we can alway sell because appreciation would kick in ( lets say 5 percent times 5) so equity building is enough to do this in loop cycle.

We can do this :    a---->b----->c----a---->d---->c :-) lol

it's seriously the highest R/R tax-advantaged strategy we could have in real estate. Also need to be careful with lender that support the strategy and the DTI as well. Once we build the relationship everything is just flowing.

[V.G Jason]

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Daniel Ben-Hur:

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

 It's a great idea in the low debt, moderate supply world. You can't really copycat such principles, you have to think a bit differently.  

You probably can do this every 3-5 years if your houses are turnkey, but likely 5-7 years if they are not. Don't just assume lowest downpayment, next house. Your DTI will get maximized and you'll be short capex & reserves when the cost of capital is going to be higher the next 10 years than the previous 10. Also if you're thinking about having a family, be cognizant of the health of it to keep moving for strategy versus peace of mind.

the trick is that you move when DSCR in that property is DSCR 1.0 ; so this is the basic concept, once you apply to different primary, they would offset that income to 0.75 DSCR. Also lets say we accumulate 2 primary in 5 years, we can alway sell because appreciation would kick in ( lets say 5 percent times 5) so equity building is enough to do this in loop cycle.

We can do this :    a---->b----->c----a---->d---->c :-) lol

it's seriously the highest R/R tax-advantaged strategy we could have in real estate. Also need to be careful with lender that support the strategy and the DTI as well. Once we build the relationship everything is just flowing.

It'll work, but in California it may be harder because you got to factor above average appreciation so your spread between with lower downpayments/higher DTI and A to B, then again A to D may be really hard. Bakersfield may be different cause it's Bakersfield. This is a tangible way to do it in most markets, even very good ones like Nashville, but Cali this is different. And arguably the best way to do it for young couple with no kids and no intention of kids. Or young whippersnapper with healthy income.

[Carlos Ptriawan]

Quote from @V.G Jason:

Quote from @Carlos Ptriawan:

Quote from @V.G Jason:

Quote from @Daniel Ben-Hur:

My and my soon to be wife both graduated college at the same time and we make a combined $150k/year ($75k each) We are still living at home with our parents to save money, and we want to build wealth in real estate. 

We both have 0 debt. I’ve seen many strategies, but this one that has caught my eye recently. Purchasing the right home every 2 years, then renting it out to someone and purchasing a new home. Repeat for 15ish years to hopefully own a total of 6-7 homes by the end of this. I am projected to make $100k and she is projected to make $150k within the next 5 years, and on from there. Is this doable on our salaries in Bakersfield, or would it be better out of state? 

 It's a great idea in the low debt, moderate supply world. You can't really copycat such principles, you have to think a bit differently.  

You probably can do this every 3-5 years if your houses are turnkey, but likely 5-7 years if they are not. Don't just assume lowest downpayment, next house. Your DTI will get maximized and you'll be short capex & reserves when the cost of capital is going to be higher the next 10 years than the previous 10. Also if you're thinking about having a family, be cognizant of the health of it to keep moving for strategy versus peace of mind.

the trick is that you move when DSCR in that property is DSCR 1.0 ; so this is the basic concept, once you apply to different primary, they would offset that income to 0.75 DSCR. Also lets say we accumulate 2 primary in 5 years, we can alway sell because appreciation would kick in ( lets say 5 percent times 5) so equity building is enough to do this in loop cycle.

We can do this :    a---->b----->c----a---->d---->c :-) lol

it's seriously the highest R/R tax-advantaged strategy we could have in real estate. Also need to be careful with lender that support the strategy and the DTI as well. Once we build the relationship everything is just flowing.

It'll work, but in California it may be harder because you got to factor above average appreciation so your spread between with lower downpayments/higher DTI and A to B, then again A to D may be really hard. Bakersfield may be different cause it's Bakersfield. This is a tangible way to do it in most markets, even very good ones like Nashville, but Cali this is different. And arguably the best way to do it for young couple with no kids and no intention of kids. Or young whippersnapper with healthy income.

Yes partially... For this strategy to work beautifully you need to have max DTI that can afford two homes. This is my basis strategy when accumulating primary from where it was 400k-500k back in 2010-2013 era; the appreciation is double inflation, 6% ; and interest rate is 3% ; making this strategy is equivalent to 16% CD rate. So the ratio between income and home price is important, this strategy would not work if one is having low salary or median salary.

This is why if someone could make 200k and live in Austin where home is still 400k, they could be millionaire in 9-12 years by executing this.

[Chris Mason]

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

[Carlos Ptriawan]

But now with 5% down rules for MF this strategy is very doable Jason... if you keep buying duplex/triplex primary every 3 years, this ain't no brainer....especially when it's executed when you are young and the city is growing like Bakersfield or Austin.

[Carlos Ptriawan]

Quote from @Chris Mason:

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

One practical problem that I've experienced in the last ten year  is that since it's househacking, some banks can accept multiple leases into one home, some can accept single home only, and some can't accept it all. Also since DTI is always maximized with two primary to qualify, bank/CU gives my file an exception case. It was so complicated becoz even for the job we have to maintain the same job type for 24 months.

But yea with 5% down, this strategy is fastest to print the first one million. So my mantra is not like biggerpocket to buy rental, but to keep buy primary and do value-add, increase to DSCR 1.0 to offset max DTI issue.

[Chris Mason]

Quote from @Carlos Ptriawan:

Quote from @Chris Mason:

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

One practical problem that I've experienced in the last ten year  is that since it's househacking, some banks can accept multiple leases into one home, some can accept single home only, and some can't accept it all. Also since DTI is always maximized with two primary to qualify, bank/CU gives my file an exception case. It was so complicated becoz even for the job we have to maintain the same job type for 24 months.

But yea with 5% down, this strategy is fastest to print the first one million. So my mantra is not like biggerpocket to buy rental, but to keep buy primary and do value-add, increase to DSCR 1.0 to offset max DTI issue.

I work with a bunch of different lenders, so I try to give advice that has the broadest possible application, since we don't always know who the lender will be on the N+1 deal two years from now.

So my suggestion to you, to have your cake and eat it too, for that SFR that you want to rent by the room to maximize rent: have one lease, one tenant.... and that one tenant is allowed to sublet. You get to charge the one tenant above-market rent (in exchange for them being allowed to sublet), the lender gets the one single lease that they know how to understand, everyone wins.

[Julien Jeannot]

@Daniel Ben-Hur

That's a phenomenal strategy, make it better by doing it with 2-4 units.

[Eric DeNardo]

@Daniel Ben-Hur, It's a great strategy! If you can find the right home that rents well when you move out, its a great strategy. I would think about maybe house hacking where you rent out a part of your home who will then pay part of your mortgage, this will help you save much more money and help you achieve your goal. 

[Carlos Ptriawan]

just buy house that has ADU and you're all set.

[Carlos Ptriawan]

Also folks if you are mastering these primary collection you would not want to invest OOS, buying rental or syndication , this is enough to create substantial wealth.

[Marcus R.]

Love it, this has been our strategy the past 5 years.  If you can find cosmetic only rehabs you can really super charge it.  One of the best ways to get started (if not the best). 

As others have mentioned, there is a personal aspect to doing it this way since it involves yourself, spouse, and possibly a family.  I've heard divorce is a bad investment so I think it's OK to sacrifice returns but increase your happiness and factor in your personal situation.  In the longer run if it doesn't make a great rental it likely will make a great home and you'll capture that through equity/appreciation. 

[Sean O'Keefe]

@Daniel Ben-Hur it depends 

[Tyler Fontaine]

This is not get rich quick... but it is get rich for sure. 

Definitely a good plan. If you can execute faster then do it. I'd find a seasoned agent and lender who can assist you through this. Let them know your plan and strategize for the long term if possible. 

@Carlos Ptriawan is on point with his BRRRR strategy there. Definitely the way to do it if you can make it work.

Also, it's worth noting that currently individuals can only have 10 mortgages active at a single time. A local bank, private equity, or certain lender may let you get more after that. You may have to start buying in LLC's at that point. You may need to get a partner or come up with a more creative lending solution. That's a long ways out but it's food for thought.

[Jake Yates]

Quote from @Chris Mason:

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

 Hey Chris, I am in a similar situation as Daniel Ben-Hur. I am coming up on the two year anniversary of my first home purchase and have been trying to decide how to proceed next. Excuse me but I’m ignorant- could we buy another primary home with primary interest rates while renting out the original? Since it would be your “primary” residence one would be renting out, I would be surprised the bank/IRS would allow you to purchase a new “primary” home.  I’d think you can only have one primary residence correct?

[Chris Mason]

Quote from @Jake Yates:

Quote from @Chris Mason:

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

 Hey Chris, I am in a similar situation as Daniel Ben-Hur. I am coming up on the two year anniversary of my first home purchase and have been trying to decide how to proceed next. Excuse me but I’m ignorant- could we buy another primary home with primary interest rates while renting out the original? Since it would be your “primary” residence one would be renting out, I would be surprised the bank/IRS would allow you to purchase a new “primary” home.  I’d think you can only have one primary residence correct?

 Good question.

When you get a primary residence mortgage, the promise you make at the closing table is to personally owner occupy for one year. There are tax advantages for 2 years, but the mortgage obligation is one year. 

After that, you've fulfilled your promise. You can buy another primary residence, and get the primary residence interest rate and low down payment options, as you see fit.

There will be a BS test, since occupancy fraud is the most common type of mortgage fraud. "It's going to be my primary residence! <proceeds to immediately rent it out, never having even moved in>" = occupancy fraud in the mortgage context. 

Going from a 3/1 and 1.5 hour commute to a 4/2 with a 45m commute? Absolutely makes sense, no one will even question it.

Inverse? You're trading out a 4/2 and 45 minutes for a 3/1 and 1.5 hours? Fails the BS test, smells like occupancy fraud. There needs to be a really good reason, or this loan may very well be denied, even if DTI and everything else lines up.

Going from a 4/2 1.5 hour commute, to a 3/1 45 minute commute? Expect to be asked to write a letter attesting to the fact that you value a short commute over the extra bedroom, maybe WFH is over and you have to start going to the office again, the 4th bedroom was your home office, but you no longer need it... that certainly makes sense and would also go through with any lender that ever wanted to get my brokered business again. 

Does the BS test, make sense? 

[Carlos Ptriawan]

Quote from @Jake Yates:

Quote from @Chris Mason:

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

 Hey Chris, I am in a similar situation as Daniel Ben-Hur. I am coming up on the two year anniversary of my first home purchase and have been trying to decide how to proceed next. Excuse me but I’m ignorant- could we buy another primary home with primary interest rates while renting out the original? Since it would be your “primary” residence one would be renting out, I would be surprised the bank/IRS would allow you to purchase a new “primary” home.  I’d think you can only have one primary residence correct?

Yes we do it all the time