Primary Residence. How nice should it be?

15 Replies

Hey Everyone,

My wife (22) and I (22) own a primary residence in Blaine, Minnesota (large suburb 20 mins north of the cities) and recently purchased a rental in St. Cloud (1 hr NW of cities). I want to keep pushing, and my next idea would be to find another primary residence and move there, taking our roommate with us. We would then turn our current home into a rental. 

The Dilemma I face is this: My price range is $275k - $350k, but I struggle to find something nice enough to want to live in, that would also cash flow once we move again, turning the home into rental #3. I don't know any contractors at all, let alone ones who won't give me the shake-down. Therefore, any homes that need a lot of fixing, even cosmetics, might be out of the picture. I just don't know if there will be renters who are willing to pay over $3,000 for a nice home in the 'burbs, otherwise, my new primary residence won't cash flow when I move out.

TL;DR Has anyone had success buying a nice primary residence and finding renters to cashflow when you move out? Or will I have to settle for a light fixer-upper?

@Sam German I would suggest working with a realtor who has contractors that will do cheaper work for their clients. That way you have good contractors and get a better price.

Have you looked into furnished rentals? That gives a much higher return than a typical LTR. If you can’t cash flow your house when you move out then maybe start looking at straight investment properties or second home properties.

@Daniel Anshus I will for sure cash flow my current home, but I am just concerned about the next home I choose to live in. 

I don't know if anyone has experience in my market renting out homes for far above the median as long-term rentals. I have definitely considered STRs, which could be a good option when I move out of the next place I buy.

@Sam German If you are looking to purchase homes in the $275,000-$300,000 range there’s no need for it to run $3000 a month when your mortgage should be under 1500.

I am in your market and I know people making double the normal rates doing furnished rentals. I myself will be doing a furnished rental next year in my duplex and anticipate making $1000 $1500 more per month minimum.

Hi Sam,

I completely understand your struggle, in regards to not finding a nice enough home for the price point you are approved for. Have you by any chance given some thought to see if you may qualify for a 203k (fixer up) loan? 

@Sam German  

There is a rental market at any price point, but higher end homes have less renters and get less dollars returned per price. Converting higher end houses into rentals just doesn't make sense. You should buy rentals for your target renter, not for your personal taste.

My advice is do one of two things:

1. Bring your standards down to normal for your age. Most people in their 20's don't need tons of space or high end finishes. Sacrificing (and I am not even sure it is a sacrifice in this case) at a young age pushes you ahead at an older age. 

2. Buy a personal residence to meet your high expectations and don't ever convert to a rental. I live in a $600K house that I would never rent out, because it doesn't make sense financially. I buy rentals as rentals and personal residence as personal residence.

@Joe Splitrock I believe I have my standards set appropriately. In my market, $275k-$325k is a nice, but modest home. 4bd and 2-3ba is reasonable. The main reason I'd like to buy as primary and eventually turn it into a rental is to take advantage of primary residence mortgage terms (down payment, interest rate).

Originally posted by @Sam German :

@Joe Splitrock I believe I have my standards set appropriately. In my market, $275k-$325k is a nice, but modest home. 4bd and 2-3ba is reasonable. The main reason I'd like to buy as primary and eventually turn it into a rental is to take advantage of primary residence mortgage terms (down payment, interest rate).

 I understand the market well. You said you couldn't find a home you wanted to live in that was in your price range, which you gave as $225-  $350K on the high end. Now you are saying homes in that range are nice, but modest. I would argue homes in that range would make great rentals. Which is it, do you want to be above or below $350K to find a house that meets your standards? Maybe you just didn't word it as you meant.

@Sam German since you are open to moving on a somewhat frequent basis, I would consider living in the homes for 2 years and then selling instead of renting. your gains would be tax free up to $500k since you are married. I would then use these profits to buy rentals and/or buy another primary residence and repeat. 

Originally posted by @Bruce Woodruff :

@Sam German How many times have you been 'shaken down' by Contractors? You make it sound common so I'm guessing it is a frequent occurrence for you?

I have not used contractors before, but in my research, it seems common to encounter problems, high costs, or sub-par work when working with contractors. I just have yet to establish relationships, so I don't feel comfortable going into a deal knowing I will need a contractor, with no one to rely on. 

Originally posted by @Sam German :

I have not used contractors before, but in my research, it seems common to encounter problems, high costs, or sub-par work when working with contractors. 

And there you have it. It is actually rare to find a 'bad' Contractor. You might want to do some more (better) research.....

On the other hand, in the Contractor world, it is common to find pain-in-the-*** customers.....try not to be one and you will have a good experience.

Classic case of wanting to have the cake and eat it too. You're on the right track with 2 properties at 22 but if you're looking for cash flow in this market, there is always going to be some tradeoff in getting a deal to work out. In your situation I think that would come as buying a house that needs some work so spending some time/money/energy upfront to make it work, or converting to a STR as @Daniel Anshus and spending time/money/energy during your asset management. 

 Try calling a property manager who works in your area to see if they will let you know what kind of rents they see where you're looking as part of your due diligence. Network with local investors to find subcontractors as you need them, and don't do much more than a cosmetic rehab for this next property if you're afraid of biting off more than you can chew. Make sure you have a good agent who are aligned with that goal and don't tell you a house has "good bones" when they don't know what the hell that means. 

If you're concerned about the rehab and working with contractors, I get it, but that's part of real estate. It's a mega cliche but entrepreneurs are compensated in proportion to the problems they can solve. If you could buy a turnkey 3 bed 2 bath in the burbs and have it cashflow with little to no work, then everyone would do it and prices would go up, more demand for people to buy vs. rent, you get the point.

Originally posted by @Daniel Anshus :

@Sam German If you are looking to purchase homes in the $275,000-$300,000 range there’s no need for it to run $3000 a month when your mortgage should be under 1500.

I am in your market and I know people making double the normal rates doing furnished rentals. I myself will be doing a furnished rental next year in my duplex and anticipate making $1000 $1500 more per month minimum.

Hi Daniel, do you mind sharing where you are finding renters for your furnished units? Airbnb? Is it short stays or full year leases? Thanks! 

@Collin Barker I don't do furnished rentals yet. But my clients and investors I know use all the same avenues as you do to find typical LTR. Marketplace, Zillow, Apartments . com, You can definitely put the property up on air bnb  and vrbo and furnished finder etc. Anytime I post my  properties for lease I get people asking for month to month or if the property will be furnished (I sometimes virtually stage the photos).