Conservative investing or a different strategy?

Question

I've always been so impressed and inspired by those of you buying properties in LOC areas, fixing them up, and cash flowing or flipping.

I went more of a conservative route - Bought a $400k house in Austin, TX pre covid w 5% down and a 2.3%IR, lived in it for a year, then bought another $520k house w 20% down at 4.25% IR. The first house is cashflowing slightly and the one I'm in now will likely cost me $200/month for a few years.

I'm moving to Columbus, OH next year and am thinking about my options. Option 1 is buying a house in one the most desirable neighborhoods downtown for ~$450k with ~15% down and living in that for a few years before moving to the suburbs and buying again, or, renting a place and trying to buy a house in a B/C class neighborhood, renovating, and trying to actually have some short term gains.

Is there anything else I should consider or anything obvious that I'm missing?

Remington Lyman · Answer

you can probably put less than 15% down if you are living in it

Carlos Ptriawan · Answer

so the biggest advantage of direct real estate investing is by using leverage, and leverage has exponential result if you buy multiple properties, this is the secret why I could payoff 30YFRM in less than 9 years, what you do is correct, try not to sell at least until it reached year 8, because by that time the appreciation and the equity building  would suffice enough to payoff other house --completely-- without you doing anything else. Time when to buy (buy at discount and then rehab) and when to sell (after 8th year) is important, this is the most advantage that we can do that other type of investment can't do (like office or multifamily syndication) although it's the greatest and easiest way to print money from nothing.If you buy with 95% LTV then wait til it develop to 70%LV before selling.

if you want cash flow and appreciation, just buy house with adu/basement from day one, the more broken the better it is lol

Henry Clark · Answer

Use the lookup above. Primary 2.   5 years. Will have many discussions.

As your post started comparing fix flip type investors as an example  versus your model.  I’m giving you ideas for your model. Buying A class homes and moving in a year and buying another one  with say 15% down.

If it was me I would buy either model homes in new subdivisions or the worst house in an “A” neighborhood.

Model homes- people have follow the herd instincts.  New subdivisions are “Bad” because no one lives there, it must be bad.  Model homes sell for less.  Once they start to fill, prices go up because they must be “good”.  If you use the primary residence 2 of 5 years you don’t pay taxes onto $250,000 or $500,000 gain.  Plus in this scenario your value increased with no investment or effort on your part.

Worst house-  all you have to do is clean up, landscape, etc now your worst house takes on the value of the neighborhood.  Lipstick on a pig approach, just not a slum lord.  Both of the above are types of fix flip.  You will need a cash snowball to help you progress otherwise you will hit your ceiling in scaling.

Corby Goade · Answer

Without knowing more about your lifestyle or family situtation, I'm ALL about the B level MFH house hacks. That's absolutely the best way to improve ROI and reduce living expenses. That's what I'd be looking for regardless of the city or price point.

I don't agree with the idea of renting before you buy- it's always better to own and build equity rather than doing that for someone else.

Best of luck!

Henry Clark · Answer

If you’re going the A class route would try different strategies.  Buy the worst house in the neighborhood.  Look for ones you can ADU to add value. Or add mother in law rental unit.  When you get ready to sale use the 2 years primary residence out of 5 to avoid taxes.  If you’re retired at that point you might move every two years between the units to sale.

Usually you’re wanting to use leverage for REI but your model requires larger downpayment.  I would use a different rack then. Look for new subdivisions and buy model homes.   They will be at a lower rate.  Or if we do get into a downturn, find some contractors who have to sell a partially finished house and have them finish it as part of the sale. This will be cheaper than a finished house proportionately.

Always different angles.

Brock Mogensen · Answer

Cash flow certainly is tough to find right now but I never like to buy anything that doesn't cashflow on day 1..unless there is big upside.  Sounds like with the locations you are buying in, you will see some good appreciation (eventually).  But I would still aim for finding deals that will cashflow once you move out of them

V.G Jason · Answer

Then absolutely go for A. But try to find best value of it too-- meaning something undervalued due to ugliness, and add to it.

Jonathan Marsh · Answer

@V.G Jason I love your perspective and agree with you totally but I also want to love where I live. I'm from NYC and miss walkability so i'd like to be able to walk to the best coffee shops, shops and restaurants. These areas are probably A. I feel the tradeoff would be that living in a b - b+ area is a better financial move but not as good for quality of life, etc.

Kerlous Tadres · Answer

@Jonathan Marsh it depends on your level of investment experience, you clearly have a decent background in investing. If you're looking towards buying a house in one of the more desirables part of downtown Columbus, I reccomend you try getting a duplex-quadplex to try to get more cashflow out of it. I live in the Columbus area and would love to help you out with any questions you might have!

V.G Jason · Answer

You're in a great spot. I don't know your age but your ambition to buy & hold as long as possible makes me believe you are young(er). And if so, great.

For 1, I'd keep the Austin houses. No cash out re-fi's or selling.

Two, I would look at the better but not best neighborhoods in Columbus. Like B to B+. It should be about $100k+ less than A areas, given median home price in Columbus is $275k.  I'd buy the ugliest one but with the best structure; put 10-15% down depending on how much you estimate you need for cosmetic and/or capex renos. Fix that place up a bit; floors, countertops, just cosmetics. Put some monies aside for roof, hvac, water and do that when you're sub 1 year from moving(assume 3-5 years). When you're ready to move, upgrade those capex items. Rent it out. Do a cash-out refi and take that natural + forced appreciation and move to the Burbs and do a similar thing.

Now if A areas and B areas are within 15% of each other in price, then I would reach for A areas.

Conservative investing or a different strategy?

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