Buy SFH now or wait for MFH
Question: Should I start with a single family and house hack or wait for ~10 months for multifamily?
Hi BP family! So I am conflicted right now. Due to rising interest rates, I do not have the capital for buying a MFH property and I most likely will not have the capital until ~September 2023. So should I wait until I have the capital or should I buy SFH now? Short term rentals will be my main play and there are a few good properties in the area however, the properties are either in areas of slow growth (house age + lack of development = low appreciation) or they are priced at the high end for the area they reside.
Quick summary of my RE strategy: I plan on buying small to medium SFH or MFH properties (2-4 units) until I gain the capital to invest in the larger MFH units (8-100+ units).
A few other questions that I have are these as well:
1) As a first time home buyer, would it be a good idea to look in other states where properties are cheaper?
2) Should I try to find someone to partner with? I do not have someone in my current circle who is into RE so I would have to meet someone, but is this wise when I have no experience?
Thanks in advance for all advice!
Hey Rea, some of your strategy will be dependent on whether you are aiming for immediate cash flow or long-term appreciation. I see that you are posting here in Raleigh. I am very optimistic for future appreciation in the area. However, the prices are high, and your immediate month-to-month cashflow might be better elsewhere.
Another Wake County specific tip. The Raleigh area tends to have far fewer multifamily homes than the average, similar-sized city. You might look at Durham, instead. That will open your options a bit.
If I were in your shoes, I would probably act sooner rather than later, if the numbers on the house hack make sense (just because I like to take action rather than wait). Of course, I cannot predict what the house market will look like in 12 months, so there might be some advantage in waiting.
Hi Rea- I agree with Brandon that getting started sooner rather than later is smart. I'm also from Raleigh and looking to do something similar.
Have you looked into a HomeStyle/203k loan by any chance? Under this type of loan you can put down the same or similar down payment as FHA since you have to live there for a year and it also includes your renovation costs in the loan. It takes some work to find a deal where the numbers work but might be worth looking into as it would allow you to buy a distressed property in Raleigh, have it fixed up then get it appraised at a higher value and pull the equity out to invest in other deals. For that reason it seems to me like an ideal strategy to start investing. I'm also looking for a distressed property but looking a little further out in hopes of finding something that has some cash flow
Quote from @Rea Cooper:
I would start by considering the market. Prices are dropping. They are likely to continue dropping for the next 6-12 months before stabilizing. How would you feel if you bought a house today and in one year it is worth 10% less? If you plan to hold it long-term, it may not matter. A house that cashflows today would still cashflow if it loses equity. The bigger concern is that you may be able to afford more if you wait 6-12 months because you have more time to save/learn and prices will come down. If you wait six months and property values are 10% cheaper, you'll feel smart for having waited. If prices are still the same as today, at least you'll know you didn't make a mistake and you'll have saved more and learned more. I see it as a win-win.
If you don't have any investors in your circle, it's time to get a new circle! Go to NETWORK at the top of your screen and you can search for other investors and investment groups in your area. You can also check meetup.com or search facebook for real estate investment groups, clubs, or meetings in your area.
Tomorrow is never guaranteed, I don’t think Sfr is a bad place to start.
Quote from @Brandon Vanderford:
Hey Rea, some of your strategy will be dependent on whether you are aiming for immediate cash flow or long-term appreciation. I see that you are posting here in Raleigh. I am very optimistic for future appreciation in the area. However, the prices are high, and your immediate month-to-month cashflow might be better elsewhere.
Another Wake County specific tip. The Raleigh area tends to have far fewer multifamily homes than the average, similar-sized city. You might look at Durham, instead. That will open your options a bit.
If I were in your shoes, I would probably act sooner rather than later, if the numbers on the house hack make sense (just because I like to take action rather than wait). Of course, I cannot predict what the house market will look like in 12 months, so there might be some advantage in waiting.
Hi Brandon, thanks for the response! I am in this for the long haul so even if I only cash flow $50/mo, I am okay with it since it is my first property. Also, funny enough, I am looking at investing in Durham mainly. Even in Durham though it seems multifamily inventory is nonexistent unless your willing to pay 700k+ (which i don't have yet). I see you're a property manager, just curious, have you heard of any property management groups that do rent by the room in the area?
Quote from @Kevin Maurer:
Hi Rea- I agree with Brandon that getting started sooner rather than later is smart. I'm also from Raleigh and looking to do something similar.
Have you looked into a HomeStyle/203k loan by any chance? Under this type of loan you can put down the same or similar down payment as FHA since you have to live there for a year and it also includes your renovation costs in the loan. It takes some work to find a deal where the numbers work but might be worth looking into as it would allow you to buy a distressed property in Raleigh, have it fixed up then get it appraised at a higher value and pull the equity out to invest in other deals. For that reason it seems to me like an ideal strategy to start investing. I'm also looking for a distressed property but looking a little further out in hopes of finding something that has some cash flow
Hi Kevin thanks for the reply! I have considered 203k loans, however I hear they are hard to come by and I also did not want to use FHA for my first property as I have heard it is hard to get a follow up loan within a year of using FHA (i plan to buy one property each year for first 3). I also wanted to save the 203k loan for when I became a little more seasoned (~3rd property). With housing prices being where they are though, I think it is something I should reconsider however. Thanks for the suggestion, I will keep this in mind.
Hey Rea,
One thing I'm a little confused on with your post is that you mentioned the SFR would be a house hack. I just want to make sure I understand correctly - Would this house hack be getting you out of currently renting or have you just already owned another property for a year so you can now purchase again with a loan for primary residence?
If you're currently renting and purchasing a property would allow you to avoid getting on a lease - I would say you definitely want to make a move now rather than later. Nathan makes a great point about values possibly dropping over the next 6 - 12 months, but depending on how much you're currently putting towards rent it might still be advantageous to secure a SFR to avoid rental costs. If you lose $20,000 in market value on your home in 10 months, that is still better than losing $20,000 in rent over 10 months. At least one of those you have the chance of getting back in a more favorable market!
Quote from @Nathan Gesner:
Quote from @Rea Cooper:
I would start by considering the market. Prices are dropping. They are likely to continue dropping for the next 6-12 months before stabilizing. How would you feel if you bought a house today and in one year it is worth 10% less? If you plan to hold it long-term, it may not matter. A house that cashflows today would still cashflow if it loses equity. The bigger concern is that you may be able to afford more if you wait 6-12 months because you have more time to save/learn and prices will come down. If you wait six months and property values are 10% cheaper, you'll feel smart for having waited. If prices are still the same as today, at least you'll know you didn't make a mistake and you'll have saved more and learned more. I see it as a win-win.
If you don't have any investors in your circle, it's time to get a new circle! Go to NETWORK at the top of your screen and you can search for other investors and investment groups in your area. You can also check meetup.com or search facebook for real estate investment groups, clubs, or meetings in your area.
Hi Nathan, thanks for the reply! Yes, i am looking to hold for the next 2-3 years, I plan to buy one property each of the next 3 years then start selling them to buy bigger. To your point about housing prices dropping, what if i can negotiate a deal where the price of the house is dropped ~5-10% (do not know how likely this would be)? I have a great loan product where i can put 0% down so as long as i find renters, I am not too worried about appreciation swaying a little. Is my thinking on this the right approach?
Also, thanks for the advice on network tab. I surprisingly never knew about it but you can bet I will be using it now!
Quote from @Nate Sanow:
Tomorrow is never guaranteed, I don’t think Sfr is a bad place to start.
Hi Nate, thanks for the reply and for the advice!
Quote from @Drake Shadwell:
Hey Rea,
One thing I'm a little confused on with your post is that you mentioned the SFR would be a house hack. I just want to make sure I understand correctly - Would this house hack be getting you out of currently renting or have you just already owned another property for a year so you can now purchase again with a loan for primary residence?
If you're currently renting and purchasing a property would allow you to avoid getting on a lease - I would say you definitely want to make a move now rather than later. Nathan makes a great point about values possibly dropping over the next 6 - 12 months, but depending on how much you're currently putting towards rent it might still be advantageous to secure a SFR to avoid rental costs. If you lose $20,000 in market value on your home in 10 months, that is still better than losing $20,000 in rent over 10 months. At least one of those you have the chance of getting back in a more favorable market!
Hi Drake, thanks for the reply. I currently live with my family and pay rent (though very little compared to the market rent). And that is a good point in regards to paying mortgage being like paying rent. I always thought if I was not making enough (from renters) to at least cover mortgage, it was a bad deal but I like your approach and will use it to evaluate so thanks for the advice!
Quote from @Rea Cooper:
Quote from @Brandon Vanderford:
Hey Rea, some of your strategy will be dependent on whether you are aiming for immediate cash flow or long-term appreciation. I see that you are posting here in Raleigh. I am very optimistic for future appreciation in the area. However, the prices are high, and your immediate month-to-month cashflow might be better elsewhere.
Another Wake County specific tip. The Raleigh area tends to have far fewer multifamily homes than the average, similar-sized city. You might look at Durham, instead. That will open your options a bit.
If I were in your shoes, I would probably act sooner rather than later, if the numbers on the house hack make sense (just because I like to take action rather than wait). Of course, I cannot predict what the house market will look like in 12 months, so there might be some advantage in waiting.Hi Brandon, thanks for the response! I am in this for the long haul so even if I only cash flow $50/mo, I am okay with it since it is my first property. Also, funny enough, I am looking at investing in Durham mainly. Even in Durham though it seems multifamily inventory is nonexistent unless your willing to pay 700k+ (which i don't have yet). I see you're a property manager, just curious, have you heard of any property management groups that do rent by the room in the area?
The long-term strategy sounds ideal, especially with the continued growth in the Triangle (e.g. Apple coming to RTP, Google coming to ATC). Multifamily in Durham can still be found at a better price point. For example, a couple months ago, some friends and I crunched numbers on a duplex on North Roxboro (listed for 280K). We did not move forward with it, but the opportunities are there.
Effective this month, I have begun doing some work in the room-by-room management space. I have managed STRs for over three years, but am new to room-by-room MTRs. Follow up with me in three months, and I should be able to provide better feedback!
Hi Rea, One of the easiest ways of scaling in real estate today is to invest in turnkey properties out of state. If you have a busy 9-5 routine but have the money to get started and don't have enough time, turnkey companies provide some of the best resources to scale your portfolio. I have used that strategy so feel free to reach out if you want to discuss.
Quote from @Rea Cooper:
Let's take an older couple that's owned a house for 20 years. They bought it for $100,000 and now it's worth $250,000 and they only owe $50,000 on it. They want to sell to and move closer to grandkids. They hear on the news that the market is cooling. If they sell 20% below market, they can still pay off their loan and walk away with $150,000.
I anticipate some sellers will panic as they see the market cool and they will be more likely to accept a low-ball offer.
Take a look at markets in closer proximity to Raleigh/Triangle and assess those. The Triad - Greensboro, High Point and Winston-Salem - have been experiencing a very similar appreciation to the Triangle but at 75% of the price point. Similarly, rents on homes are almost equal to those in the Triangle, so you get the appreciation and cash-flow at a more attainable price point.
Greenville and Fayetteville are in close proximity but have favorable price points to allow you to cash flow immediately.
If you're committed to STRs, definitely take a look at Wilmington as tourist destinations will always be in high demand. A point of caution - cities like Raleigh have a lot of HOA'd communities, so make sure you're 100% confident that you can STR per HOA bylaws/regs before getting under contract.
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Quote from @Rea Cooper:
Question: Should I start with a single family and house hack or wait for ~10 months for multifamily?
Hi BP family! So I am conflicted right now. Due to rising interest rates, I do not have the capital for buying a MFH property and I most likely will not have the capital until ~September 2023. So should I wait until I have the capital or should I buy SFH now? Short term rentals will be my main play and there are a few good properties in the area however, the properties are either in areas of slow growth (house age + lack of development = low appreciation) or they are priced at the high end for the area they reside.
Quick summary of my RE strategy: I plan on buying small to medium SFH or MFH properties (2-4 units) until I gain the capital to invest in the larger MFH units (8-100+ units).
A few other questions that I have are these as well:
1) As a first time home buyer, would it be a good idea to look in other states where properties are cheaper?
2) Should I try to find someone to partner with? I do not have someone in my current circle who is into RE so I would have to meet someone, but is this wise when I have no experience?
Thanks in advance for all advice!
Good chance rates will be a lot lower 10 months from now...Also a good chance prices will be higher. 6 to one, half dozen to the other. Which would you rather own? Take action on the one you prefer.