Moving to Des Moines IA - SFR or Multi-Fam?

Question

Hello team,

My name is Jose Ruesta and I'll soon be living in Des Moines IA. I am an active duty Soldier and have been in for close to 14 years. The only real estate experience I have is when I bought my first SFR in San Antonio TX almost 7 years ago and has been rented out for the last 3 years. I bought a really nice SFR with the intent of renting it once the Army moved me but didn't really do my DD taking into account expenses that come with renting out a property. I pretty much break close to even minus expenses such as paying for things around the house when they break.

Now the Army is moving me to Des Moines IA and i'm looking to buy SFR that my wife and I will truly enjoy while we live there for the next 3 years but keeping in mind that we need to rent it out once we leave. I want to be cash flow positive when it's time to rent it out. I have entertained the idea of buying a multi-family residence (duplex-triplex) but the down side for us would be having to share walls with tenants. I am sure that buying a duplex or triplex could be a better financial decision but we also don't want to share walls like we have been at current duty station (I know I can't have it both ways).

I think I'm also open to an easy level of a fixer upper to fix over my time there.

I am hoping to connect with people who have already gone through this type of dilemma and hear what your thoughts are.

*I will be using my VA loan to purchase this home.

Please let me know if you have any questions at all and i'm extremely excited about starting this process. I want to do it right this time.

Collin Corrington · Answer

The old adage, you make your money on the buy.

Make sure you find something that is undervalued or has been on the market a while (usually negotiable).  It can't be too rough due to the VA guideline though.  I'd read up on those to make sure you're not chasing your tail when you start looking.

Also, double check your VA allotment.  You can only borrow so much against a VA and depending on how much you bought that first home for you may not have much left.

You can also, refinance the first one if you have a strong tenant in it and since you have 7 years of equity it may help lower the cost.  I know some good Loan Originators if you need recommendations.

Or, if you just want to sell the property let me know.  I'm here in San Antonio.

The buying a duplex and renting the other half is a tried and true method that many have used.  Sometimes you have to be a bit uncomfortable to build wealth.

Matt Fisher · Answer

I guess I assumed you'd be working at Camp Dodge too!  Southside has a lot of value for the Des Moines market and is a good rental area.  Some great neighborhoods, some less great.  It's really varies from one street of sub-neighborhood to the next.

Stuart Grazier · Answer

@Jose Ruesta I have run into your same dilemma; I'd love to buy a multifamily and house hack, however my family dynamic doesn't allow for it. My wife is not open to sharing walls all the time with tenants, especially while we have two young children.

So, we just use our VA loan and buy single family homes that we know will cash flow as a rental property after we PCS. Our most recent purchase was a bit more expensive because we are in Denver, CO, but we bought a home with a finished walkout basement that has a bed/bath downstairs, so we may attempt to rent it out occasionally on AirBnB to make some additional income. We can close off the basement to the rest of the house, so it may be able to work out to where we can do the house hacking strategy after all. Good luck! Let me know if I can help in any way.

Jason Bergan · Answer

Hi Jose,

I would do your due diligence up front and make sure a single family home is in a low vacancy area, since it seems like you'd be more comfortable in a single family home. The Des Moines multifamily market is also moving very quickly right now, and prices are inflated, so buying a multifamily may not be the best option either way. My suggestion would be to buy 3 or more bedrooms, and maybe even look into the townhomes on Jack London in Johnston. They're close enough to the Camp Dodge Army base that they rarely sit vacant and they appreciate really well as well. The HOA also takes care of all the exterior items and some of the utilities for a fairly low fee, so that would save you expenses in the long run once it becomes a rental. You may still share a wall with a neighbor but they'd likely be more soundproof than a multifamily.

Jason Bergan · Answer

Hi Jose,

Ankeny is building to keep up with incoming demand due to their projected growth. There's a lot of new developments going up in the metro in general, but in Des Moines proper there's just not room, so the established properties won't have quite as much competition in their direct area.

For NW Des Moines, parts of Drake, Beaverdale, Merle Hay, Waveland, and a few others all seem to be coming up.

The greater southside, Somerset, Jordan, Magnolia park, and a few others seem to be doing well. The biggest con with the south side in my opinion is that it took a higher hit on property values during the last recession and hasn't recovered very well in some sub sections, so a bit more risk long term.

Jason Bergan · Answer

Hey Jose,

You bet. Feel free to message me with any questions. As far as rentals go, I really like north west and southwest Des Moines proper for my investors. The suburbs are booming, but that also means a lot of new A class multifamily is going up, and we'll likely see higher vacancies because of that. Ankeny and the western suburbs are also expensive for both single family and multifamily, so cash flow is negative on a lot of the deals I've been seeing, and again you'll be competing against A class properties in the coming years, which is threatening for both rental rates and vacancy. Both nw and sw des moines have a lot of new families and young professionals, so both seem to rent well and stay rented. Small multifamily is easier to find as well as single family homes, all doable below the $200,000 mark.

Bob Rubenking · Answer

Jose,

Thanks for your service and a future welcome to Des Moines.  I'm an Army Vet myself.  I only wish I took your path when departing Ft Carson in Colorado Springs...  West is definitely where the desire and the density is heading aside from Ankeny to the North.  The southside is one of the more established neighborhoods and with that there is an abundance of older wholesale and distressed semi-distressed properties.  The bonus for you being that it would put you really close to work. Closer than base housing even!   There are plenty of Mutlifamilies that you could easily house hack and find yourself in a really great property after applying some sweat equity.  Have you considered doing a 203K?

Matt Fisher · Answer

I agree 100% with @Jason Bergan  As much as they are disparaged on BP, I like townhomes for investments.  As long as you have a good handle on the HOA, projected cap ex, etc.  The ones he recommends are nice, and they are the most convenient "affordable" property in the Camp Dodge area.  For that same reason, they would be very attractive to military personnel as long as you own it.  Not sure about rental policy from the HOA though... Surrounding housing options are much more expensive.

I love SFR's because they will always have demand and are fairly liquid.  And when you look at the returns, they are similar.  That shared roof matters a lot less than most profess and everything else (eg HVAC) is doubled or tripled).  Also, my highest priority is great renters, and I believe SFR's attract a better caliber of renter.  But if I find a good deal on a small multi, I'll buy it. There is a fairly high concentration of duplexes/bi-attached in Northwest Des Moines and Urbandale.  None in Johnston or Grimes come to mind, but I'm sure there are a few.

Jose Ruesta · Answer

@Jason Bergan Thank you for your input,

You bring up some things to think about, although we would much prefer a SFR a townhome is not completely out of the question. I just want to make sure that the numbers are in my favor when its time to rent it out 2-3 years down the road. I also thought I would be working at Camp dodge but that is not the case, I'll be somewhere near South Ridge Mall.

I am willing to commute 45 minutes each way if it means ill have a better deal on a property.

@Matt Fisher HOA's are definitely something to keep a close eye on. I did take a look at the townhomes that Jason recommended and they don't look bad. I can't wait to get to Des Moines IA to actually start looking at the properties myself and get a real feel for the area and property.

I need to educate myself to ensure my numbers will work in my favor once its time to rent keeping in mind I will a good property management company once I leave. I plan on attending some RE meet ups in DSM once I'm there to network with people and maybe find someone with plenty of experience who wouldn't mind kinda showing me the right way of doing thing.

I really appreciate the time you Gentlemen took to give me some input.

In your opinion what are the most low vacancy or high demand areas to live in in DSM?

Jose Ruesta · Answer

@Matt Fisher

I thought I was going there also until I contacted my Unit. I cant wait to get there to actually go see the areas in person. Ill get a better understanding of each of the areas once i'm there.

Moving to Des Moines IA - SFR or Multi-Fam?

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