Do I stop investing in real estate and buy my family a home now?

Question

My wife and I took a chance in 2013 in buying a duplex as our first home in a not so good neighborhood in Vermont that has appreciated well. We fixed up our side quite a bit and dealt with evictions on the other side. It’s been stable now but we feel that we have out grown the duplex. The layout isn’t great and the neighborhood still has its quirks (drug dealing, theft, airliners flying right overhead). Since then, we borrowed against our equity to buy other another property eventually paying back our loans. This past summer we did a big rehab on a duplex that took a lot out of us emotionally. We have some money in our Heloc to either buy another investment property or just buy ourselves a house that does not need massive work, good neighborhood and is energy efficient. Price is around $400k for something decent right now locally. Taxes would be about $9k.

My issue is if we stop and move into a single family, our ability to continue to build our real estate portfolio essentially disappears. It would be a few years until we have enough of a down payment for another investment. My dream is to eventually stop working full time and retire us on the portfolio. My question for BP is, at what point do you reward yourself and put RE aspirations aside?

Concerns:

• Adding 5 years to our life goals.
• Rising Interest Rates.
• Less upside in a single family these days.
• Pulling back considerably on a comfortable lifestyle to make big mortgage payments.

Thanks in advance, BP.

Matthew Ware · Answer

Hi Tom,

I'm a Realtor and an investor who lives over in the NEK. I think insight into your question might be found with your choice of the word "reward". Since our chosen investment vehicle is real estate, it can be difficult to separate our ideas of investment from something as emotional and personal as the concept of home. I try not to conflate the two and think of my personal home as a liability rather than an asset. This is a big shift in thinking for those of us who cut our investment teeth house hacking. Only you know what you and your wife need and want out of a home and whether or not the timing is right for you. When you decide the time is right, I would suggest not torturing yourself over the investment aspects of your single family home. Since you were successful house hacking, you learned valuable lessons about wealth building, but you also know that you don't want or have to live in a duplex forever. If you value flexibility then rent. If you value liquidity and want to accelerate your investment portfolio and net worth then continue to live as simply as possible and keep investing. Don't try and predict the market or interest rates. At some point the numbers will work and you will be able to afford what you want. If not, what's the point of investing? If you like nice things, nice things like nice houses in nice neighborhoods cost money, or at least tie up liquidity. Unlike nice cars, nice homes don't automatically depreciate which is nice, and sometimes they turn out to be fruitful investments. But if you choose to buy a house, buy the one you want and enjoy owning it. Go in with open ideas and be willing to pay the opportunity cost.

Peter Amour · Answer

i would keep building up my 1-4 unit buildings as much as i could , sooner or later you will be maxed and unable have those great terms . i often have people say  they wish they could do what i do . of course they could  , but starting to invest in real estate is so much better the younger and earlier you start . think of it in the same way as compounding interest ,plus you  hopefully get appreciation as well :)   don't forget who is actually " buying " these buildings and providing you with the passive income . there will always be time to be tied down to a large mortgage and your dream home :) once you are comfortable your tenants will be buying you your dream home .

Michael Dumont II · Answer

Hey Tom,

I live in South Burlington and am a Realtor and IT Guy. My fife and I own 9 units. Im in or was in a similar instance as you.

You asked about new builds, and I feel that they are over rated but have there place. While the market has been limited in the greater Burlington area, the new build scene has exploded. For Instance I live in a 3200 SF Raised Ranch on a 1/3 of an acre, town assesed at 278k and is 29 years old.  I think we could get 420k. However the 6 smaller condos, built on less than an acre 4 houses down and built in the past few years, were pushing 500k.

I encourage you to keep  your eyes open for a another "Home" maybe with greater opportunity then your curent. Note that we do not use the 1100 SF of our home insted we eent it to my mother. Yes she is close but we have our space and she has hers. Consider a nicer duplex with better location.

I could keep providing you with thoughts but, I rater just say I always like talking shop and grabing a Vermont coffe or beer. Feel free to look me up.

Happy Holidays,

JD Martin · Answer

How old are you?

If you are 25, I would say: find a career/calling that is rewarding enough that you don't dread doing it, do that and make some money, and strike a balance depending on how much pain you can endure. There's no question that, if you are young and can handle the downside, you can make some impressive strides.

This is harder to do if you're 50 and have kids headed for college.

Also, if you are not geographically limited, you can try to match up your talent/interests with an area that offers a more reasonable cost of living. $400k housing and $9k in taxes annual, plus the utility costs there, don't really make Vermont that attractive from a financial point of view (which is too bad because it's a beautiful state). When you are in employable years, the employment market should match or exceed the existence market (housing, utilities, food, cars, etc). If you live in an area where your existence is expensive but your salary is meager, you will struggle.

Tom De Moya · Answer

@JD Martin

I'm 32, pretty good job. Wife has it solid too. I'm weary of rocking the boat and leaving my 3 investment properties to property managers. Also no plans for kids. So not geographically limited exactly but the quality of life is pretty high here if you are ok with the cold.

Tom De Moya · Answer

Perhaps thats one thing I want to stay away from. We work 9-5 and I want to direct my fixer up energy to investment properties and less so personal homes. There is a new development I'm looking at. Lot I'm considering is pegged at the intro price but I already see the next properties higher on the hill going for $40k more by next summer. How does BP feel about new developments?

Mark Bookhagen · Answer

If you buy a single family fixer upper in a good neighborhood, you'll likely come out on top.

Do I stop investing in real estate and buy my family a home now?

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