Selling our home for $140k net..what now?

Question

Should we buy or rent our next residence? We live in So Cal and want to start investing in real estate. Our goal is to buy and hold and start producing some cash flow. We are in our early 40's, so we are a little late to the game,  but want earn enough cash flow so it can replace our income within 5 to 7 years. Any and all input is welcome!

Wes Blackwell · Answer

Hi @Hector Valles! Great question!

The tough part of this equation is that you still have to provide housing for yourself after selling. There are plenty of investing opportunities in Sacramento / Central Valley as well as out of state, but your returns may be offset by the fact you are still having to pay for a new mortgage or rent.

Therefore, one thing I would add to this conversation is to consider looking at 2-4 unit multifamily properties in your area. The financing is just the same as SFR, and you can live in one of the units and rent out the rest. Either your obligation to the mortgage payment will be significantly reduced, or you might even come out ahead a couple thousand per year.

That allows you to enjoy extra savings and live there essentially mortgage/rent free. Stack away those savings to use as a down payment on your next property, and you can move out and rent your unit one day and experience a massive surge in cash flow.

Plus, since it will be your primary residence you will be capital gains exempt when you sell if you live in the property for at least 2 years! #winning!

This investing strategy is known as "House Hacking" and I know many other investors currently experiencing success with it. Here's a few Bigger Pockets articles on the subject to help get you started if this strategy sounds like a good fit for you:

• https://www.biggerpockets.com/renewsblog/2013/11/02/hack-housing-get-paid-live-free/
• https://www.biggerpockets.com/renewsblog/2014/11/20/a-new-way-to-look-at-the-concept-of-house-hacking/

Best of luck!

Penny Clark · Answer

@Hector Valles, I would agree to either rent in a place you can afford and invest 80 percent of the money and set aside 20 percent as a residual fund for the property or properties you buy. True, Cali is a tenant friendly state and can prove troublesome for landlords who don't bother to educate themselves on landlord-tenant laws. Landlords do okay here as long as they know and enforce their rights and keep their properties in good order.

We have been investors here in NorCal so I understand the lure of cash flowing properties in other states, but if you are just starting out, consider looking into areas that are more affordable then Southern Cali that are not so far - Sacramento, Merced, Fresno, Stockton. The other option is to sit on the money for a while and WAIT. Put feelers out to the brokers and wholesalers in your area who have the contacts to find you properties not listed yet on the MLS (check your local REI group or connect with BP members in your area) Decide what your property criteria is - it could be a multi that you decide to fix up and/or live in and rent out the other units or it could be a SFR that you can put 20 percent down, do some fix up and rent out.

Give yourself some time to learn the basics on this site too. Good luck and please share with the community your investment experience!

Thomas S. · Answer

I would rent something affordable and invest the $140K.

Kristopher Hanks · Answer

@Hector Valles I grew up in SoCal. If I was in your same position I would invest out of state to avoid unfriendly landlord tenant laws that exist in CA. I am a buy and rent investor and I would advise that you do your homework and then decide what you want to do. But in my very humble opinion I believe that buy and rent is the perfect way for you to invest at your age. Income replacement will grant you the freedom that you seek. Find a high cash flowing market, which you can do on this site, and pick one. Do homework, read, study, ask more questions, and then do not get hung up on the analysis and pull the trigger. With a $140,000 in cash you can do a lot with that. As far as buying or renting the place you live in, that's a decision that only the two of you can make. Do you plan on moving out of the area that you currently live in? If not I would buy something. Interest rates are still low. Keep costs under control and build some equity in the new place. Good luck.