First property Townhome, duplex, or flip?

Question

Seeking advice!!!

My wife and I are both in school for the next 2-3 years or so and are looking to get our first property close to campus. Instead of paying rent and losing that money, we’d rather put it towards a mortgage of our own. We are considering one of the following options, but are open to other suggestions! Please let us know what you think!

1. FHA loan Duplex. Owner occupy one side and rent out the other. By far my favorite option, but will require the highest down payment and probably the highest mortgage payments.

2. FHA loan Townhome. The mortgage on this would be pretty affordable, it would be probably about as much as we would spend rent on living close to campus. It would just be trading off from paying rent to paying it towards a mortgage.

3. Flipping a house. Are you able to even flip a house using an FHA loan? Or is there a way for poor college kids to afford this? With this option we would flip a house and then use the money for a down payment on a duplex.

Another question:

As a rental property investor, would it be beneficial for me to get my real estate license? My internship would pay for it for me.

Which option would you choose? Or any other ideas?

Jonathan Greene · Answer

#3 is a no. In my opinion, most people will tell you to do #1, but I would do #2 so you can keep your heads in school and learn and grow inside of a safer investment with HOA protecting you from some of the major expenses that could come in a house hack. Too many people rush into it and a condo or townhome is a safe way to enjoy a property, play it carefully, but also set yourself up with a rentable unit when you are done. You can stay on the FHA while you live there and then refi out before you leave, grab some appreciation, and then put the next FHA into a house hack after graduation or close to it.

Will Barnard · Answer

Any of the 3 options are possible, it will all depend on IF you can come up with the down for the multi unit or not. I will take a different approach for #2 option. I do not invest in townhomes or condos as the HOA dues cut into your cash flow, you have to deal with the rules and regulations, get permission from the arch committee to do anything, and in down markets, they lose the most the quickest. In an up market, they appreciate slower - compared to single family. This is generally speaking of course and every area of every state has its own RE market conditions.

If you can afford #1, I would go for that as you have the future option of a cash out refi (assuming you get market appreciation and/or forced appreciation through value adds) and you have the future option to move out, rent both units, have nice cash flow and live elsewhere. The more RE you own and hold long term, the more likely you have set yourself up for future success and net worth.

#3 is possible, but I would certainly focus on your education first and if you take this route, buy a single family fixer, fix it up and live in it for the next 2 years+, you can then sell it is your primary residence down the road as you lived there for 2 of the last 5 years to receive your tax deduction (no capital gains on the profits up to $500k for married couples).

#2 is my least favorite due to the items I listed above and #1 is my favorite.

Bryan Gregory · Answer

@Nicholas L.

That’s good to keep in mind. Yeah I would plan on keeping it for a long time. Thanks!

Nicholas L. · Answer

@Bryan Gregory

I just want to add a thought on renting.  If you will keep this property and have a long term plan for it, such as making it a rental if you leave the area, that's great.  But renting in the short term is not a bad deal and does not throw money away.  When you buy and sell properties you pay significant fees in the form of closing costs, commissions, repairs, etc.  Conversely, as you probably know, when a lease is up... you just move.  No fees.  So just keep this in mind.

Bryan Gregory · Answer

@Will Barnard

Awesome! Thank you!

Bryan Gregory · Answer

@Jonathan Greene

Great advice! Thank you!

First property Townhome, duplex, or flip?

First property Townhome, duplex, or flip?

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