Buy 1st home locally or buy rental in/out of area/state?

Question

Hi Everyone I am new to BP and thinking real estate but have always been eyeing it for some time now.  Lately I have been wondering about buying for myself first or buy rental first.

I currently live in Santa Rosa, CA, an area that is going on 4 years in a row of fires.  Before someone asks, no I can't move. Nutshell reason is family, otherwise I would move somewhere more economical for myself and profession.

In doing some reading and research a comment that has stuck with me is, "if you can't afford to live in an area or neighborhood you want to live in, due to high cost, then consider purchasing a rental property in a lower cost area or neighborhood."

I would love to be able to house hack in some way shape or form. I'm tired of renting, but increased cash flow is always a good thing in my mind.

There are a number of scenarios in my head, but don't want to make this too long of a post.

Thoughts?

Thank you in advance.

Les Goodman · Answer

First I want to thank all of you for your thoughts so far.  Great to hear from the lender side and to hear from some that are familiar/local to my area.

To answer some of the questions and give you a bigger picture.

• - Single dad here, and have my kid half the time
• - The biggest rub in all of this is that I was furloughed from my job back in July, so I am trying to think of creative ways to get financing, but have yet to hear back from the lender I was speaking with
• - The 2nd rub now is that my landlord is selling the duplex I'm in, so I am fearful of an eviction or even a rent hike, current rent is $1815 and is exactly 10% more than when I moved in. It's a 2 bdrm 1.5 bath
• - I have no problem moving out of Santa Rosa, as my son goes to school in South Sebastopol, so I'm looking at SR, Sebastopol, Rohnert Park, and Cotati

I am open to all kinds of possibilities from a duplex to a 4 bedroom SFH where I could rent out a room and Air bnb the spare room as well.  I even just saw a huge price drop on a fixer. It's 3 bedroom asking $350k with very low HOA. It's not in an area I would want to settle down in, but I have no problem getting dirty and doing some work on a place to live in for a couple years and then rent out.  There is even a 4 plex on the market near me that looks newly renovated, but qualifying is always the question.

My current duplex, asking $750k, West End Neighborhood of Santa Rosa. I think he is asking $50k to possibly $100k more than the comps. My landlord sold his property next door for about $725k and those were 2 seperate units both 3 bedroom 1 bath @ 1100 sq. ft. each.  The listing sq. ft. for my place says 1800, but there is no way my place is 900 sq. ft. I've measured wall to wall for taxes and it might be 800 at most and that is counting the stairs.

I'm a chef by trade and profession, 20+ years, and while I was making a decent salary and had a pretty awesome gig working at a private High School. A chef with a teacher's schedule is unheard of. However, due to the current Covid situation and seeing how bad the food industry is being affected I am at a "mid life crisis" stage of considering a new profession.  While there is a slim chance of returning to my job I am a hope for the best, but plan for the worse kind of person.

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Thanks again for the thoughts.

Jon Schwartz · Answer

Les,

Oh man, do I have great Santa Rosa memories... Back in the day, I was working on a Robert Redford film in St. Helena and driving over the mountains to Santa Rosa to meet a girl I was seeing. What fun.

I'm going to vote for househacking. I'm househacking a duplex right now. I live in a really expensive neighborhood in LA. Long story short, I pay less than my tenants to live here, and I get all the benefit of the principal paydown every month.

I also believe that wealth creation is the product of equity. I'd much rather own an appreciating asset in coastal CA than a Midwest duplex that throws me $100/month and does little else. Your coastal CA property won't cashflow, but if you househack, you can get in for as little as 3.5% down and/or lower your monthly living expenses from what you're paying on rent.

Househack!

Best,

Jon

Ali Boone · Answer

You're kind of asking a few different things, and pondering a few different scenarios, so here's a couple random articles that hit on the things you're talking about:

Househacking considerations: https://www.biggerpockets.com/...

Buy local or out-of-state: https://www.biggerpockets.com/...

Maybe start your considerations around the things in there, and then build out from there.

Darius Ogloza · Answer

Les, I have invested in both strategies and after twenty years of trial and error I believe that Jon is right on. Coastal California is far from perfect (sitting in the smoke and haze this past week down in Marin makes the point as well as anything) but our housing market has a proven track record of profitability and, despite all of the prognostications about our demise, millions of self-professed Cali-haters would descend on us tomorrow if our housing prices were suddenly reduced to the national median.  Have you considered moving down county - towards Cotati or Petaluma, where the fire risks are lower?  Still a hop skip and jump to SR (or it would be if they finally widened U.S. 101 - in addition to fire we also put up with infrastructure from the 1950's).

Bukka Levy · Answer

Hi Les, As someone who lives next door (Petaluma) I can relate. I started in Petaluma by house hacking and did that for my first four doors. My first question would be your family situation - are you married? Kids? Or are you referring to family in the area? It's not so easy with a live-in family but still possible. If you're single this is a great area to house hack as rents are ridiculously high compared to home prices (which are also ridiculously high, but rents are still worse). A cosmetic fixer is easy to add value even while renting out part or all of it.If you're married or have kids full or part-time, you could always hack a multi-family and still come out ahead in our area.For the last ten years I stopped house-hacking locally because my family has grown too big and am just now starting to look out of state. Still, I'm always looking locally for that house where the prices and rents, along with today's killer interest rates, line up in my favor. In fact, I'm going to look at one today!If you decide to look locally let me know what you're looking for. If I see a match I'll send it your way.Best of luck!

Jesse Byrer · Answer

@Les Goodman - In my opinion owning an asset is better then not and if you can't afford the area you live in then that leaves you with one option.  Whether your house hack or buy an investment property comes down to how much capital you have.  House hacking would provide a lower down payment option, but then you have to live in that property for a period of time.  Is that something you're willing to do?  If so, and you think like an investor I would recommend a 3-4 unit.  The reason being, is as investor those properties require typically 25% down and you can buy that same property with only 3.5% using a FHA loan.  Rates for investors on those properties are higher as well.. not just as an investor but because it's a multi-unit.  You don't get penalized for buying a multi-unit when you buy using FHA!  Last piece of advise would be if you're trying to keep the cost down and looking to get instant equity you should look at dated or distressed 3-4 units and use FHA's 203K Program which allows you to roll in the improvement costs.  You'll want to be mindful of the loan limits as the very from county to county.  If you need that link just connect directly and I'd be happy to help!  Good luck and stay safe! - Jesse

Buy 1st home locally or buy rental in/out of area/state?

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