What would you do? Single Primary vs Several Rentals

Question

If you started fresh and had $100k to spend, what would you do and why?
1) Use it to purchase primary home, keep for 5+ years and then do a cashout refi
or
2) Go straight to buying rentals that may or may not cashflow now

Choice 2 has the issue of further downside risk in addition to negative cashflow (tenant issues etc) in a correcting market.

I would like your takes to this scenario, you can propose a third/creative option if you'd like.

Kevin Sobilo · Answer

@Tychua G., I would house hack small (2-4 unit) multi-families with value-add opportunity.

So, if I bought a small multi-family lived in 1 unit for a year and did improvements to bring rents up even a deal that wasn't generating much cash-flow will generate cash-flow with increased rents and especially when I move out!

After a year, I would move on to the next house to do the same thing. Within the same 5 year period you cited in your option #1, I would have a nice little portfolio of cash-flowing rentals with untapped equity from the improvements I did plus a little mortgage pay-down. If I wished I could tap some of that equity to buy a primary residence to live in long term.

Alecia Loveless · Answer

@Tychua G. Personally I feel buying a primary over rentals only makes sense when you’ve reached your own personal financial goals.

For instance I’ve currently got 7 properties with 25 doors. 20 of which are rented and the last 5 units are in my newest building that was bought vacant and is under renovation but should have 2 units rented in the next 2 months.

I live in a duplex that I house hack. I got a GREAT deal on it. You never know when your GREAT deal may come along!

My personal goal is to get to at least $12,000/month in cash flow so my spouse and I can retire from our W-2s and focus on the rentals and other things.

So if I were you I’d take some time and really look at what your goals are regarding rental properties, a primary residence, passive income/cash flow, your spouse/family’s needs if you have any one to take into consideration, and any other life goals like travel, early retirement, etc before just deciding to buy a primary right now vs. several rentals or a multi family every year for the next 5 years which IS a good way to start out.

Julien Jeannot · Answer

@Tychua G.

Just about on the rates.

Same play book. I've got 3 properties I'm prepping for sale to 103x into something bigger in Q1 of 2024. If rates goes up, then I secure a lower rate, if they come down, I refi and better the cash flow.

If rates coming down, it will push demand in the market and drive equity up so I could also refi cash out and maintain a similar cashflow.

I'm more interested in the properties then the rates, finding deals is the hard part.

Julien Jeannot · Answer

Sure, keep in mind there are a lot of factors that does into the results. I'll provide a bit of context with first duplex house hack.

Goals

• Start building a rental portfolio
• Needed a place to live and did not want to rent
• Safe location
• Subsidized living (house hack)
• Garage
• Privacy
• Able to commute to work
• Value add play that I could do myself or hire a contractor without breaking the bank

Solution

• Property: Duplex
• Condition: Cosmetic rehab & rents under market
• Neighborhood: 1970ish, safe, long but doable commute
• Garage, big yard & subdividable – will build DADU eventually
• Did not match any of the of the “standard” rules. Ex: the 1%.

Results over time (5+ yrs)

• ·      2x equity
• ·      Cash flows $1500/mo
• ·      Fully rehabbed
• ·      Used a HELOC to finance another property’s rehab

Left 3 years in because the wife and I needed more space. At that point with rehab and rent increases the one unit covered all operating expenses and debt service. Did not cover reserves.

Then we bought a primary house. Used a HELOC to do a cosmetic rehab and convert the downstairs into an ADU to VRBO. Later refied to a better rate on the primary and paid off the HELOC.

• 
•

Julien Jeannot · Answer

@Tychua G.

I'd combine option 1 & 2 and house hack a multi family 2-4 units.

That's how I started and it worked out wonderfully. You get all the benefits of the two options.

Eliott Elias · Answer

Why is buying a property with negative cash flow an option? If I had that cash and had steady income, I would use it to buy as many breakeven/cash flowing rentals as possible. I would not waste my money on a primary.

Julien Jeannot · Answer

Yr1 => ($36k) net cash flow. $Value 272.5k

-$11.4k Rev

-$18k PITI

-$25k rehab unit 1

-$2.4k R&M

Yr2 => ($10.4k) net cash flow. 1 unit rented

Yr5=>$10.7k net cash flow. 2 units rented & fully rehabbed

Yr9 => $24k net cash flow. 2 units rented & fully rehabbed. Value $800k.

Peter Mckernan · Answer

Depends on your situation.. You need to tailor the way you see fit, but if you want my opinion, several rentals then primary

Tychua G. · Answer

This seems to be a reasonable approach but what happens if the macro fiscal environment further deteriorates leading to declines in home prices?  Are improvements to a homes automatic equity in a depressed environment?  Appreciate your input!

Benjamin Sulka · Answer

Julien,

Thanks so much for sharing. Cheers to your success.

Was this a deal you found on the MLS?

What would you do? Single Primary vs Several Rentals

Most Popular Reply