Buying a single family home... Any words of wisdom?

Question

Hey everyone.  I am a full time Physical Therapist Assistant and an extremely small time buy and hold real estate investor.  I have watched (and helped) my parents for 22 years build and manage multi-family properties.  Five years ago, my husband and I, bought our first home which was a triplex.  Fast forward five years and we now have a 17 month old baby girl and we have totally outgrown this two bedroom apartment.  The other two units are a studio and a four bedroom.  We have thought about moving to the four bedroom but we aren’t too fond of the school district in this area.  We have been looking for other multi families in towns with better school systems, however, what’s on the market is either priced too high or it’s a total gut (which at this phase of our life is too much of a challenge for us).  We are thinking of going the single family route and getting something more comfortable so we can grow our family.  Any words of wisdom in looking for a single family house while still hoping to add a couple investment properties to our portfolio within the next 10 years?  Thanks in advance for your insight.  Sincerely, Christin

Christin Ross · Answer

@Jaysen Medhurst  ,Thanks for the response.  We are considering Brookfield, New Fairfield, Newtown, Bethel, New Milford and Southbury.   We aren’t in a super big rush and we do have time since she is a few years away from school age but that’s why we are starting to think about it now.

When we move out of our triplex we should cashflow $700 a month and that’s with me figuring in mortgage, taxes, insurance, vacancy, capex, repair/maint, garbage, water and management fees.  We are actually planning to manage the property ourselves but I included it just to be conservative so we should actually bring in around $1095.00.

The towns we would consider for future investments would be Danbury for sure bc I know the market and rent rate very well, any surrounding town as long as the numbers work out and we would be willing to invest in other markets in CT or surrounding states but i’d Have to do a little more market research first.  One big thing Im sure you know is that since house prices are so high in this area the down payment required is substantial.  Which is what’s makes me nervous about getting a SF before we get another MF. We will be using most of our capital for a down payment and with higher expenses it will take much longer to save for our next purchase.

We have $66,000 with a $20,000 cash reserve.  I have thought about trying to find cheaper markets to get into for future investments in order to lower the capital requirement but that is a little out of my comfort zone and knowledge base at this point.

Christine Laigo · Answer

Hey there, thought that you might be interested in a Historical SFh in Southbury CT? LMK!

Jaysen Medhurst · Answer

@Christin Ross, BRRRR isn’t easy, because you have to sift through a lot of deals to find one that works. They’re out there.

You don’t have to buy a BRRRR in all cash, you can finance the purchase and/or reno. Hard money is an option as is private money or working with an equity partner.

Christin Ross · Answer

@Jack Medford thank you for the solid advice.  It is definitely easy to get caught up in wanting a BIG beautiful house.  I have been crunching numbers and crunching numbers and that’s exactly what I’m afraid of..... having so many expenses at the expense (no pun intended) of foregoing our savings for future investments.

@Theresa Harris we have definitely considered this and it is a fantastic recommendation.  Some of the towns we are looking at for SF don’t have a strong rental market so I need to do a little more analysis on what I think I can get for rent and how difficult it would be to find renters in that market.

Thanks all for your input.  I’m still so torn on exactly which way we want to go at this point but you all have given me some food for thought.

Theresa Harris · Answer

Why not look at single family homes that will work for your family in the next couple of years, then turn that into a rental.  This gives you more time to buy your next home around the time your daughter will be going to school and if you buy a places that needs a little bit of work, you can do it while you are living there and add some value.

Jack Medford · Answer

@Christin Ross You hit the nail on the head with why BRRRR's are a lot easier to recommend than they are to pull off. #1 reason being that properties, even full rehabs, are not priced accordingly to make the strategy work. Not to mention that everyone and there mother is attempting a BRRRR. It reminds me a lot of when those HGTV shows about flipping got really popular and then all of a sudden every new investor was going to be a flipper.

You seem like you've got a pretty good bit of knowledge already, and a good head on your shoulders. Probably don't need a whole lot of advice. I'll still chime in with a little, but it may not apply. All depends on where your perspective already is.

My advice: Don't go big for the sake of going big. I've seen this so many times (and even done it myself) where people buy more house/land than they need simply because they can. It is easy to become lured in by lots of land and/or a large home, but it takes a lot more money than most people realize to upkeep all of that space!

Christin Ross · Answer

@Jaysen Medhurst I would love to be able to do some BRRR deals.  I’m just not sure it’s as feasible in every situation as it sounds.  BRRR is a totally new concept for me.... I’m not sure if I fully understand it but what I think it is (correct me if I’m wrong) is going all in on a property including purchase price and rehab with all cash.  Renovating the property.  Renting it out.  Waiting a “seasoning” period.  Refinancing and pulling the cash out of the deal?   Rinse. Repeat.

A few things seem difficult with this task.  First off you need to have the large amounts of capital at hand to be all in for the purchase price and rehab.  From what I’ve seen in CT at least is that house values even on real shitty properties that need a lot of rehab are not that low.

The second thing that seems a challenge is forcing the equity up enough to get 75% of the ARV to equal your all in costs.  Plus how do you know the bank will refi?  Are there anything’s you can do in advance to make sure you will get a loan?  I wouldn’t want to make an error and get my capital tied up without the ability to refi.

Thank you for giving me some food for thought.  My knowledge is definitely lacking in the creative finance aspect.  All I’ve seen and known is work hard, save money, get loan with $ down.  I have read about some of these strategies but I still don’t feel comfortable with execution at this point.

I will definitely check out some of those markets in CT that you mentioned.  It’s funny that you said Manchester.  I lived there for 7 years on North Main St. near Buckland Hills mall.  I feel some what comfortable with that market seeing as I lived there.  It is an hour from where I live but that’s ok.

Thanks again for taking the time to give me feedback!

Christin

Jaysen Medhurst · Answer

@Christin Ross, since you’re not in a rush, why not use your capital on a few BRRRR deals? That would allow you to keep recycling your cash while building a portfolio and cash flow.

I don’t know the Danbury market very well, but Manchester is a good rental market (I grew up there) and a number of BP investors have had good luck in New Britain.  I think Groton/New London has a lot of opportunity, too. EB has some aggressive hire plans for the area.

Jaysen Medhurst · Answer

@Christin Ross, what towns are you considering? Ridgefield, Newtown? I'd be happy to make a passionate arguement for Greenwich, if you're open...

Your daughter is only 17 months, so there isn't a huge rush from a school-district POV. It might be worth moving to the 4-bed with the aim to find the right place in the right town within 3 years. That gives you some breathing room, you don't want to feel like you're being forced to make a decision.

A few questions:

• How will your triplex cash flow when you eventually move out?
• What towns/areas are you considering for further investment properties?
• What's your capital position and how do plan for a new personal property fit in?

Buying a single family home... Any words of wisdom?

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