Rent vs buy personal residence

[Andrew Oatman]

My wife and I will close on the sale of our personal residence in a couple weeks. We're considering pros/cons of buying another SFR vs. renting. The SFR would tie up a lot of capital that we could otherwise use to invest in multifamily real estate. I'd like the BP community's thoughts on which scenario is the better investment:

1. Buy a $450k SFR. $22k downpayment; $10k closing costs; $50k rehab budget, ARV of $550. $40k/year in mortgage payments (including principal pay-down, interest, taxes & insurance). Make this our personal residence for 2 years to take advantage of the no-capital-gains-tax benefit. Expected sales price after 2 years is $600k. OR
2. Rent an apartment for $15k/year. Save $82k in capital from not buying & renovating an SFR. Invest that $82k+ in an 8-12 unit multifamily property that cash flows $1,000/month (after applying 50% rule). Use Year 1 & 2's total living expense savings of $50k (renting at $15k vs. mortgage at $40k) and either buy SFR in Year 3 or continue renting & invest in multifamily real estate.

[Bob Okenwa]

I bought my personal residence last year before getting serious about REI and kind of wish that I stayed renting and saved up money instead. I love my home and everything it means to my wife and I, but man that extra money would be nice these days. There is no guarantee that the 600k ARV you're estimating will be there in 2 years so I wouldn't bank on inflation and appreciation like it's a given. Make sure to calculate the closing costs of selling that 600k house and estimate the profit earned and include the expenses of home maintenance vs the money saved in the rental for 2 years to see which has the higher net amount. I'm personally a fan of MFR's so my opinion may be biased, but I like the idea of multiple incomes from one building and one mortgage vs having to hunt down 8-12 SFR's.