Quote from @Fumi Maher:
Hello community,
I am a new investor in the Austin area, TX and debating between two strategies. Since I am new to the town, I wanted to seek advice from experienced investors out there. Which strategy below would you do in the Austin market? I am looking for a property around $500k, single with a remote work and side hassle.
Strategy 1: buy a duplex, live in one unit (for one year as a "primary residence) and rent out another unit as a short-term / mid-term rental on Airbnb.
Strategy 2: buy a single-family house with at least 4 bd, live in one room, rent out the rest of rooms as a mid-term rental on Airbnb / long-term rental.
I am new in this game and here to learn everything. Thank you all!!
Hi Fumi, Let me take a stab at your question.
Lets review some major points as they are pertinent to my advice.
1. You are NEW to the Game.
2. Your are Singe and have the luxury to be able to work Remote!
3. Deciding to buy a duplex or SFH. Question? Is it only the duplex that you were projecting to live in for one year or either one for one year?
Based on the above points, you asked us (experienced investors) what would WE decide.
This is an easy answer for me!!! I will back it up with sound logic.
Buy the Duplex, NO QUESTIONS ASKED!! Why?
1. Duplex give me FLEXIBILITY!
Life is not static but always changing. With the duplex, you can do both rental options. Rent out one side, either Long term, Short term or Mid-Term. AND the side you live on you can rent out a room or two depending on the number of rooms in your duplex or you have the option to maintain your privacy and sanity and keep it to yourself. What happens if you buy the SFH and hate renting it by the room but the cost to maintain is too much by yourself. Because you are able to work remote, enhances the need for flexibility as I can easily see a time where you want to move someplace else because you can. Someone who has a Great job that does not allow them to move, would never be tempted to move. The fact that you can could create that desire to move. Having a duplex gives you far more flexibility to make that move than owning a SFH. If you don't know why, DM and I will lay it out.
2. Since this is an INVESTMENT website, a DUPLEX is a FAR BETTER INVESTMENT in Austin than a SFH. Duplexes cash flow better, have less risk, AND EASIER TO MANAGE compared to a SFH. Let's take these assertions one by one. I did say I would use logic.....right.
Duplexes cash flow better: Some would argue, I'm wrong, by the room is better cash flow. Maybe, maybe not. I say not for the following reasons. If I am hell bent on renting by the room (I don't think that is a good LONG-TERM strategy, will elaborate later), I can do that on both sides of my duplex as well. However, when you combine the income from both the units, I think you will end up with more income after a year or two than with a SFH renting by the room. Let's assume that rent by the room yields $1000 per room all bills paid for the tenants. Since we are considering a 4 bedroom house, let's compare it to a 2 bedroom 2 bath duplex each side. We are only going to be able to rent out three rooms because Fumi will be living in one. Lets say for argument sake, that I rent out one unit long term for $2000 monthly unfurnished, the other unit, I live in so I only rent out one room for $1000 all bills paid. Income would be the same if I compare to the 4 bedroom house at $1000 per room. Under this scenario which strategy has the highest vacancy rates. Less vacancy means more cash flow.
Duplexes have less risk: Mainly because you have less tenant risk (but we will address that on the next paragraph). Risk goes hand in hand with the amount of money you stand to make. The more money to be made the more risk you take. Think about it, why do people do Airbnb........make more money, however they have higher vacancy rates, and more management required. Remember Fumi is NEW to INVESTING. Requiring more hands-on management verse less (which is more desirable).
Easier to Manage: Renting by the room, you are month to month with your tenants. Tenants USUALLY don't get along, long-term!!!! Come on think about it, have your brother or sister come live with you after you have been living by yourself for 5 years......it won't be a peaches and cream. Have you heard the expression "when visiting someone, don't stay longer than 3 days or you begin smelling like dead fish". Not really the smell, just no one wants to put up with you more than three days. It is not the number of days, think long term. Now multiply that by 3 strangers in your house ....good luck with that. Yes I have known it to work because the owner is not a push over, enforces policy and can make it run good......however, do you have the right personality to do this, AND if you move out can you continue to have the house run smoothly with no one in charge. You can't just give it to another tenant to run, their leadership and authority will be questioned by your other tenants. How many tenants will you lose not because they didn't like the property but they didn't like your tenant selection.
Remember my first point FLEXIBILITY, well if you decide to bail on the rent by the room, it is more unlikely that you can cashflow positive with a SFH than a duplex in Austin TX if you move out of the property. It is always easier to find TWO $1000 renters that ONE $2000 renter. Your rental pool is higher renting out at $1000.
Ok, now let's look at where the Rubber meets the Road. How would I do this!
I would buy the duplex. I would look for a 2 bedroom 2 bath duplex with a one car garage for each side located between the two units and each front porch on the each end of the building. This duplex will most simulate TWO INDIVIDUAL HOUSES. I own two duplexes three properties apart. One duplex is just how I described it above the other is a SHARED porch. I have FAR MORE MANAGEMENT ISSUES because of the SHARED PORCH. I have loss GOOD TENANTS because they shared a porch with people they did not care for.
I would rent out one side long term and I would keep the other unit just for me as I would want my privacy. I shouldn't assume Fumi that you are female and if you are, you have to be even more cautious about having strangers in your home. However, if you have no issues renting a room out, you have the option to renting a room on your side too. If you happen to buy a 3 bedroom duplex you have even more options, but I like a 2/2 over a 3/2 but that is for another discussion. Cheers and Good Luck.
