Strategies for second property

[Zachary Kessler]

Hello all I'm currently hacking my house that has an ADU dwelling that generates income, I bought this property intending to leave and rent the house that I currently reside in (2 bed 1 bath) I currently have a very good interest rate locked in here from 2022 that I don't want to lose or have my mortgage called due from leaving here, I live here for very cheap with the income from the ADU. I'm getting ready to make my next move in 2025 and I'm contemplating on staying here and buying a multi family property as an investment out of state (only an hour away) which would be a lot less capital and have a lot more land lord friendly laws or buy another multifamily as a primary residence locally and hack that property I'm single and live alone. What are the pros and cons of each situation?

[Jackson Shumaker]

Hi Zachary, congrats on the success you've had so far! Here are a few initial thoughts and observations for both scenarios which might be useful in guiding your next move:

Scenario 1: Leave your Current Primary Residence & Buy Another House to Hack Locally
1. For the vast majority of Conventional, FHA, and VA mortgages you are only guaranteeing the lender that you'll live in the property as your primary residence for a minimum of 12 months. After this point you can typically move elsewhere and put your old primary residence to work as a dedicated rental property. Your interest rate, on a fixed rate loan, should remain unchanged and your mortgage should not be called due.

However you should still confirm that this is the case with your lender (and read your mortgage commitment) out of an abundance of caution and because some loans and programs do require a longer seasoning period. Some first-time home-buyer programs and grants require up to 5 years of primary residency unless you opt to sell sooner.

2. By keeping your investments local you may be able to self-manage your properties more easily because you're close-by and already knowledgeable about what's required of you as a landlord. You will be obligated to modify your home insurance once you leave, regardless of whether you self-manage or not and this would apply to Scenario 2 as well - for any property you don't occupy yourself.

3. You can probably spend much less time touring and learning new things than you would in an otherwise unfamiliar market: laws, neighborhoods, tax considerations, etc.

Scenario 2: Stay in Place & Buy an Out-of-State Multi-Family Property

1. Clearly an opportunity to invest in a more landlord friendly state than NY. This is a significant potential benefit that can impact everything from security deposits to rent controls to eviction procedures. 

But please thoroughly educate yourself on what "landlord friendly" actually means on a case by case basis. I don't know which nearby state you're considering (PA is probably the most attractive) but local municipalities will sometimes enforce extra red tape and/or protections for tenants beyond the state-norm. What exactly are you getting and what are you potentially losing out on? Can some of your concerns be mitigated (locally) through things like strong tenant vetting and property class selection?

2. Expect to put 20% down or more. I've seen some lenders offer as low as 15% down on an investment property but the terms they'll impose for doing so aren't usually worth it imo. For owner-occupied you could do as low as 3%. I didn't want to list this under Scenario 1 as it's redundant and whether or not having more control over your down payment is a pro/con is pretty case-specific.

3. ???
Depends on which state you're considering.

This is just off the top of my head and far from an exhaustive list of considerations. I would need to know a lot more about your specific situation and objectives in order to tailor the advice.