1st post, planning for 1st property, Rent SF or Buy Portland?

[Nathan Wang]

Hey everyone!

Very excited to join the community and conversation here. I've been listening to the podcast, passively reading some real estate books and decided I needed to step my game up and start interacting, so here goes. 

We are presently facing a lease renewal and are weighing two primary options, namely rent for another year, or look to buy our first property, and could use some input from the community. There are a number of moving parts here, so bare with me :). 

Background:

My fiancee and I live in San Francisco. We engineered a very advantageous rental situation for ourselves and have a 2bdrm/1bath unit with some killer amenities in an OK neighborhood for $2225/month. Our portion of monthly fixed costs including rent, utilities, internet, etc. is typically $1500. 

We're both in transition with our careers at the moment and don't have W2 gigs right now, but if we were fully employed in SF, I think reasonable expected gross earnings between the two of us over the next year would be ~$160k - $200k. 

We live a pretty conservative lifestyle, and if we were to stay renting in SF, we would look to save as much of that as possible in order to invest in our first property. So that's option #1. 

Alternatively, we have some savings, about $10k liquid and could probably move things around to get $20k, that we could utilize towards a downpayment. The market we're most interested in would be Portland. Along with cheaper real estate, salaries would likely take a cut and it would be slower going to land positions there since our network exists predominately in the bay area, so that would potentially be fewer months of earning potential in the course of the next year. 

Over the past two years, we've done some serious DIY renovation and landscaping work on my fiancee's family home which was a tremendous learning ground for rehab and overall construction skills. To be honest, my lady wears the tool belt in the relationship and I'm just hired muscle, but I'm very confident in her vision, skills and execution, and I think there's very little that we wouldn't be able to tackle in terms of fixing up our first property. Ideally, we're into what I believe to be house hacking - the idea of purchasing a single family - fourplex to live in while rehabbing and then renting the other units is our goal. 

With that in mind, and having never done this before, I'm not sure how to financially compare our set up in SF, with the prospect of moving to PDX and purchasing our first property. I know there are FHA loans that only require 3.5% down and that there's some sort of fixed insurance payments that come with those loans. I think there's also a similar type loan that allows for the projected rehab costs to be bundled as part of the mortgage, allowing lenders to finance the rehab as well. I know I have more research to do, but I can get in my own way sometimes when it comes to research, so I thought I'd move quickly and open it up to the community to point out the glaring holes in my knowledge :). If someone can provide a model to work from to begin a comparison, that would be super appreciated.

Timeline:

One other important consideration is our timeline. We plan to start trying for kids within the next year so there's some opportunity cost to either option.

Option #1 at face value seems to offer greater financial savings but significantly diminishes the ability to work on renovating whatever property we may eventually look to purchase when our year in SF is up on Oct 2018. 

Option #2 of looking to move to PDX and invest in a property there in the next year is more nebulous at this point due to lacking a financial framework, but it's definitive that we'll have more time and energy to work on renovating whatever property we purchase before a baby is in the picture. Also, the idea of being settled in our own home when that time comes is attractive. I guess we need some help to see if it's worth giving up potential higher earnings from SF. 

Lastly, I don't know how/if to weigh market considerations over the next year. Maybe it's all speculative at this point, but it sounds like people are saying that things are too hot right now and that a cool down is imminent. If you think this is worth considering, I'd love to see how you would factor it in. 

If you've made it this far, you're a hero. Hopefully my ramble ratio will decrease with experience. Looking forward to reading the input of you savvy investors out there. Thanks!