Would you sell your primary home to invest in Multifamily?

Question

Hi All. Current situation. Renting out what was primary home with net returns of $793/mo. If refinanced, those net returns will become $1122/mo. Currently living in rental which is over 1.9K less than mortgage, including taxes and insurance. Primary is not for sale but recently have had a few offers to sell and would net roughly $220K on the sale after closing costs and commission. The question is... Sell, continue to rent and invest in MF (already have MF property) or stay put? Decisions....Just looking for a little feedback...Thanks!

Rick Martin · Answer

@David Levin you have to ask yourself what do you want more - Financial Independence, or "The American Dream" of owning a home? I wrote a whole article on this. If you total up 360 principal - interest -tax - insurance payments, plus all the repairs one would do over the course of a 30-year mortgage, it is a no-brainer. Rich Dad Poor Dad himself says don't buy a house (a liability) unless you can pay cash. You could buy a house and be on the hook for a $3000 mortgage (depending on where you live), or buy an apartment, and get paid $3000 a month. Easier said than done, but it can happen,

Evan Polaski · Answer

@David Levin, as Rick mentions, there is a lot to factor into this.  On the surface, from a purely financial standpoint, yes I would sell my primary to buy an investment property.  From a cash flow play, this is an easy decision.  You have a net cash outflow to own your own home, and hopefully a net cash inflow from a rental.  But, you still need to live.  If your net cash inflow, less what you have to pay in rent to live somewhere, creates a larger number than simply owning a house does, then invest and rent.

External factors: owning a home tends to increase your credit score giving you better ability to borrow and leverage.  If you have kids, can you rent in the school district you want?  Are you married?  Homeowners exhibit a much lower rate of divorce than renters and speaking to my divorced friends: that was the largest economic impact on their lives.  Especially if you are talking multifamily investing, single family homes tend to appreciate at a faster rate than multifamily properties, so the equity in your primary might far outpace your investment property.

Quentin Davie · Answer

The best thing you could do is what we recently did. We got a HELOC on the equity in our home at 90% ARV minus current mortgage balance. Your interest rate will stay the same , unless you refi for lower rate and do HELOC as well. We were able to invest with HELOC in rentals. You only pay interest for HELOC money drawn for 5 or sometimes 10 year draw periods. Then its fixed for 15-20 years if the balance remains.  If you do this option check out Kwak brothers VELOCITY METHOD. @David Levin

David Levin · Answer

I appreciate all the feedback. I held back some info and apologize for doing so. I do have a wife and two young children. We moved out of state due to the covid numbers being very low in the state we relocated. We love it in our new (rental) home and want to stay but my W-2 would bring us back to our primary next year. Our primary is in the best school district in east Boca Raton Fl. We only recently purchased the house in '19 and quite honestly overpaid. So, no cash out refi since we only laid out 15%. Now the markets (Covid effect) are crazy and the offer would net us a couple of hundred K. Not chump change but not a life changer (unless it is invested well;)) either. The issue? Finding a rental or even another primary in the area to live that is in the price range that makes more sense. I, like many others, have a goal to gain financial freedom through real estate. Right now that space is MF. I currently have one 12 unit building and have commitments from a couple of investors to take another one down when that time comes. I am just looking for feedback to gain a different perspective so I can weigh options. If a HELOC were possible I think that may be the best route. Again, I appreciate and thank you all for taking the time to leave a comment.

Colby Fryar · Answer

@David Levin My vote is hang on to them, do cash out refis if possible, find partners/investors and invest in more multi.

Raju Balakrishnan · Answer

"There is truth in numbers" plug in numbers. There will be taxes (unless its a 1031) acquisition costs etc and added risk of having all investments in same category. Check what cash flow difference you can get, put some reasonable $ value to the effort you have to put to realize these two transactions. Look how much it takes to break even.

All these factors will vary from market to market. If you are selling in bay area where property values appreciate fast, a heloc or cash out refi is a better idea as @Quentin Davie pointed out. Especially in todays low-interest rates, and it will not create a taxable event and avoid many costs associated with selling. Potentially you can deduct your interest of the loan from the cash-flow (check with a CPA ). But it again depends on the situation in hand.

John Teachout · Answer

I would never sell my home to buy an investment property but in your post it sounds like you're talking about selling one investment property to acquire a different investment property since it's no longer your residence. That would just depend on the numbers and your goals.

Would you sell your primary home to invest in Multifamily?

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