2nd Purchase: Single Family or another Multi-Family?

Question

Hey all,

My first project is a house-hack in Dover, New Hampshire. I bought a duplex and am living in one unit (1.5 bedrooms) while renting out the 2nd unit. It's going pretty well but I am trying to figure out my strategy for my next buy.

Option 1: I buy a single-family home with a bit more breathing room (at least .5 acre yard and 1500+ sqft) and then delay a year to save up to buy my 2nd investment property.

Option 2: I buy another multi-family (ideally 3 or 4 units this time), house-hack for another year and then buy a single-family home to live in.

I am leaning towards option 1 as I don't prefer to live in a construction zone and so my dog doesn't hate me (the multi-family we are in has no yard).

Anyone go through a similar scenario? What did you decide and how do you look back on your decision?

Thanks,

Nick

James S. · Answer

Hi @Nick Mess,I see a lot of option 2 votes being put forth here, but I'll go ahead and make a case for option one anyway. I've done option two, in Dover, and while it has worked out well for us financially, that doesn't mean it's always the best way to go. I've noticed a tendency on these forums to always shoot for the moon; while this is admirable, it's not always feasible, or even desirable, for everyone to go that route.I don't think everyone needs to own 50 units. I believe some of us who think that overestimate the amount of happiness and freedom it will bring us. I could go on about all the studies that show your happiness relative to wealth tops out at a pretty measly 70k per person, and after that the money doesn't actually make you more happy. People tend to revert to the mean happiness level of 5 pretty regularly. I don't begrudge anyone who takes this path, but I know enough people I'd call "rich" to know that they aren't any happier than I am, even though they thought they would be. Life isn't about overcoming obstacles to get to the good part. Life is the obstacles. Those of us who use real estate as an investment feel like we've tapped into some secret knowledge, and sometimes scoff at those who follow traditional paths of just buying a SF home to live in and raise a family. But the reasons people chose that traditional path still exist in us too, we just move to quiet them for the sake of money. Who doesn't want a space that is entirely their own? Where there's no one walking around upstairs, where you don't have to be cognizant of having 10 people over at 11pm on a Tuesday, and where you can just let the dog bark at the mailman for 5 minutes if that's what she really wants to do. That is to say, we try to assign numerical values on everything RE related, and I don't know if that's always the wisest path.There is something innately satisfying about having a home that is entirely yours. It is something I definitely miss; I have to play the guitar quietly in a back room only during waking hours, I can't blast a surround-sound system, I can't be naked in the backyard if I want to be, my drums aren't even set up in the house etc. The freedom of your own space; a sanctuary where you can always retreat to, where there is no construction staring you in the face, may be worth more than some extra money when you're 65. You could be hit by a bus tomorrow, and then where did those sacrifices get you? That is not to say I mean live like a hedonist in the moment; that's too shortsighted an ideology I believe. But if the whole goal of this game is to get enjoyment out of life (isn't that why we're all trying to build wealth?), and having your own space will make your life (and the puppy's!) life more enjoyable the second you acquire it, why not take that path instead of the one that gets you to the finish line a few years earlier? I view it a bit like the people who work hard their whole lives in a job so they can retire well, without any guarantee they'll be able to actually enjoy that retirement. They could be hit by the aforementioned bus, or have a brain aneurysm three days after they turn 65 or whatever. Why not enjoy your life a little more now? You seem to have a solid idea of where you are and where you want to go, so why not trust your future self to make the correct decisions, and trust that he'll make sure you're financially secure.We could talk more about the specifics of doing either strategy in Dover, and the rental market here is rapidly changing, and I don't think most know exactly when or where it will end up, I certainly don't, but I think that would miss the point of the larger point I'm trying to make.Just my two cents from someone who has done what you're thinking of doing. Thanks for reading.

Megan Frank · Answer

We go back and forth on this too. Obviously the benefit of continuing to house hack is not having to put the full 25% down when you go to buy your 2 to 4 uni but moving every year or 2 does get old. My husband and I's biggest obstacle is getting money together for down payments so we have gone from a condo to a 2 family with large yard (single family house with detached garage with 2 bedroom apartment, 1.5 acres) to a single family with in-law (is not downtown and has small yard, town is ok with us renting both units), and now we are back in a 900 sq foot apartment in a duplex (smallest space we have occupied in years) with no yard. If we had bought a single family home as our second purchase that had no rental income we would not have been able to make the other purchases for a much longer time. If you are in a position where you can save lots of money though, maybe it is not as big of an issue. When I look at single family houses online I always look at really large houses with multiple bathrooms to see if there is in-law potential for relatively cheap (like a walk out finished basement with bath already there or space above the garage or a split entry) where you could add a kitchenette and rent it out. With 1 bedroom apartments in Dover renting for $1,000 bucks or so it could really help with your mortgage and you could have a better chance finding a home that has a yard. Accessory apartments are now legal in all towns in NH but most towns have rules you have to owner occupy the home. Another option to try and kill 2 birds with 1 stone would be buying a single family home in Durham, Dover, Lee, Madbury area with many bedrooms where the zoning would allow you to move in a couple years and rent out the house by bedroom to either UNH students or young professionals that can't afford the rising rents. Or you could do a live in flip and buy a fixer upper and live there for 2 years and not have to pay capital gains taxes when you sell. The good news is you have options and you are in a position to move forward. Brandon says on the podcasts a lot, to just keep moving forward. Just make sure you are in a position to continue moving forward. There are actually 2 mutifamily homes under contract right now in Somersworth with .32 and .5 acre yards, so they are out there, and chances are the .5 acre yard property would have room for another building. It is ugly on the exterior but would have made a pretty great investment if the town would allow for another building in the future. I say look at everything and if you decide to go with a single family home look for something that will produce some income while you live there. In your post for option 1, if you buy a single family home, do you plan on just staying there for a long time and buying all your investments in the future as non owner occupied or do you plan on buying a single family to rent out in the future? Have you already used your FHA loan for 3.5% down? Good luck!

Randall Weatherall · Answer

I know the house-hack/sell and do it with a better asset plan works great in our market but that's mainly because most of these types of units are in desirable areas to begin with. I usually recommend a safer, more stable smaller MF portfolio that can be rolled into something larger down the road while also letting you save up for that house to live in and finally separate yourself from your investments.

Nick Mess · Answer

Thanks all, very good tips and you have given me a lot to think about. Maybe a multi with a big yard could work or a single family with an in-law would be another great option that wouldn't slow me down too much.It definitely is a balance - trying to live within means and investing vs owning a private home large enough for pets, kids, entertaining, etc. I think I identify with you @James Smith the most. I am definitely committed to real estate investing, but I also want to live comfortably (still within my means) and if the opportunity cost is a few doors than so be it.

Joe Prillaman · Answer

@Nick MessOption 2!!!!! I went the other way and got a single family home as my 1st property. I had no idea what I was doing or what real estate Investing was. If I had just purchased a duplex to start I would be in a much stronger position now. The only upside is it forced me to figure out how to purchase property without relying on my income.

Matthew Stanizzi · Answer

option 2 all the way. Live unconventionally for a few more years and the boost to your wealth long term is invaluable.

Jordan Moorhead · Answer

@Nick Mess option 2 all day! Take advantage of the house hack and continue to build wealth

Anthony Wick · Answer

How old are you? What's your family dynamic? Keep moving and doing multi family house hack until you're like 40 years old. With sacrifice will come great riches.

Jaylan Archer · Answer

Hey Nick! Welcome, I am a local broker/investor in the area as well. Congrats on the success so far. How's the cashflow on your current property? I would definitely recommend buying another 2-4 unit. There seems to be better cash flow on them over a single family. You should be able to find a multi in the area with a decent size yard as well. Would be happy to connect some time.Best,Jaylan