Buy-Box Question from a Beginner Investor

Buy-Box Question from a Beginner Investor

Member since 2024 · 14 posts · 7 votes

Hello! I am a beginner investor, who has spent the last few months learning about REI. I am ready to take action to purchase our first investment property and am seeking some guidance on the specifics of building a "buy box."

Question: Having decided on a specific investment market, Is it wise/feasible to build a different buy box for different parts of the same city? I recognize this question probably ultimately boils down to investment strategy.

For more context: I just found out I am starting residency this upcoming summer, so my family and I will be moving to Houston, Texas. As we think about purchasing our first investment property, we want to harness the power of owner-occupied strategies (and the VA loan as I am active duty Air Force). We are considering either: A) House Hacking by purchasing a small multi-family property or SFH with ADU/DADU OR B) Purchasing a SFH and performing a light, live-in flip (small, cosmetic-type renovation to gain some reno experience). Our long-term goals involve holding quality assets for many years.

Follow-Up Question: Is it wise to build a buy box for small multi-family units in certain neighborhoods/zip codes, while simultaneously building a different buy box for SFHs in another part of the city? I recognize that I will certainly need to contact a real estate agent in the area, but I first want to start analyzing deals to gain some more first-hand knowledge of the local market. Maybe I am trying to bite off more than I can chew, but I would like to toss a wide net to find a property/deal that fits our long-term goals.

Any and all advice would be recommended as we begin our real-estate journey! Thanks.

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Cameron TopePro Member
Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
10mo

Hey Ethan,

I'm not sure what @Jason Wray is talking about - Houston was NOT built out with a lot of multi-family properties. 

The majority of 1-4 MF are in super expensive areas like Montrose, less desirable areas outside of town, or new developments which haven't proven their long term attraction. 

Instead of looking for 1-4 MF or SFR, I would look for a desirable area that you would want to live, with great schools.

I see a lot of investors go for the cheapest property, and get burned. 

Remember Warren Buffett's quote - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

Same goes for rental properties. 

Best of luck!

See this reply in the discussion

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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    10mo

    Ethan,

    Houston offers a large supply of 2-4 unit properties which is ideal for you to use your DD-214 or COE to get 100% financing! There are several ways to house hack this type of purchase to ensure cash flow and then to buy again in s little as 6 months.

    Making sure the property has an ARV potential also helps speed up the refinance. If you hve any questions feel free to send me an email or check out my profile. Always ahppy to help another BP Member and veteran!

  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    10mo

    To me I would focus on the multifamily solely (2-4 units). That way you have one buy box. In a market like Houston that's so big, you should be able to find something that works. Better to be focused. 

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    10mo
    Yes. It is perfectly fine to have different buy boxes based on different criteria. I would actually recommend people adjust their buy box like you are doing as long as it still fits within your overall goals and expertise.
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  • Member since 2024 · 14 posts · 7 votes
    10mo

    @Jason Wray @Aaron Zimmerman @Chris Seveney

    I appreciate all of your advice as I begin this journey into real estate investing. It sounds like a common theme amongst all of your comments is the power of "house hacking." As I have begun my search into the Houston market, it looks as though there may be potential to utilize this owner-occupied strategy. 

    At this time, I would also like to continue to keep options open and look for single family-homes with the potential for a light-renovation (i.e. almost considering a "live-in" flip).

    Thank you again! It is always great to learn from those who have been real estate for a while.

  • Cameron TopePro Member
    Property Manager · Katy, TX · Member since 2015 · 1k+ posts · 1k+ votes
    10mo

    Hey Ethan,

    I'm not sure what @Jason Wray is talking about - Houston was NOT built out with a lot of multi-family properties. 

    The majority of 1-4 MF are in super expensive areas like Montrose, less desirable areas outside of town, or new developments which haven't proven their long term attraction. 

    Instead of looking for 1-4 MF or SFR, I would look for a desirable area that you would want to live, with great schools.

    I see a lot of investors go for the cheapest property, and get burned. 

    Remember Warren Buffett's quote - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

    Same goes for rental properties. 

    Best of luck!

    • Member since 2024 · 14 posts · 7 votes
      10mo
      Quote from @Cameron Tope:

      Hey Ethan,

      I'm not sure what @Jason Wray is talking about - Houston was NOT built out with a lot of multi-family properties. 

      The majority of 1-4 MF are in super expensive areas like Montrose, less desirable areas outside of town, or new developments which haven't proven their long term attraction. 

      Instead of looking for 1-4 MF or SFR, I would look for a desirable area that you would want to live, with great schools.

      I see a lot of investors go for the cheapest property, and get burned. 

      Remember Warren Buffett's quote - "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".

      Same goes for rental properties. 

      Best of luck!


       Thank you for your insight! Yes, as I have started to look more into the local market I am noticing some of those same trends (i.e. multifamily units in expensive areas of town, or simply non-desirable). My wife and I both want to hold quality assets for long periods of time, so we are considering that as well; we don't want to purchase a property that simply looks good numbers-wise, but isn't in a desirable area of town (both for our sake and our future tenants' sake too).

  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    10mo

    Where in Houston are you doing your residency?

    Houston is a large city and the traffic can be terrible(especially during rush hours).

    If you do decide to house-hack, I would try to get a house near where you will be working(if possible).

    Saving 30 minutes or 1 hour everyday is huge.

    Houston does have a lot of multi-family homes but I find it that the ones that will cash flow are in the undesirable areas.
    The ones near Montrose or Hermann Park are harder to cash-flow. However, I am noticing prices on these homes drop over the past couple of years making it a little bit easier.

    I would also look at what the terms are if you put down 0%, 10 or 20%.
    Are the fees or interest rate different? Just because you can put down 0%, doesn't mean you should.

    • Member since 2024 · 14 posts · 7 votes
      10mo
      Quote from @Basit Siddiqi:

      Where in Houston are you doing your residency?

      Houston is a large city and the traffic can be terrible(especially during rush hours).

      If you do decide to house-hack, I would try to get a house near where you will be working(if possible).

      Saving 30 minutes or 1 hour everyday is huge.

      Houston does have a lot of multi-family homes but I find it that the ones that will cash flow are in the undesirable areas.
      The ones near Montrose or Hermann Park are harder to cash-flow. However, I am noticing prices on these homes drop over the past couple of years making it a little bit easier.

      I would also look at what the terms are if you put down 0%, 10 or 20%.
      Are the fees or interest rate different? Just because you can put down 0%, doesn't mean you should.


       Thank you for pointing these factors out. One of the things that I am hearing from the current residents is the length of commute some of them have to take everyday. I would certainly prefer a shorter commute, especially avoiding one that can double in length depending on the time of day. I would ideally love to bike into school each day!

      I am thankful that we will have the ability to put a large down-payment down (if needed for the numbers to pencil in). I agree that just because the VA loan allows for 0% down that this is the best financial decision. There is also a funding fee associated with the VA loan that changes based upon the amount put down.

  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    10mo

    While multiple BuyBoxes sounds good, the challenge is how will an agent search for all the different parameters and everyone keep everything organized?

  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    10mo

    Hey Ethan! Welcome to BiggerPockets! The questions you’re already asking tell me you’re going to do really well in real estate because you’re doing your homework upfront. You’ve already gotten some great answers, but I just wanted to emphasize the house-hack angle, especially from the tax side. House hacking lets you live in the property, have tenants help pay your mortgage, gain hands-on landlord experience, and even write off a portion of expenses like mortgage interest, repairs, and utilities.

  • Using your VA loan is definitely a good route as it lets you get in with almost no upfront cost (which is awesome), and if you go the live-in flip route, you may qualify for the Section 121 exclusion, meaning up to $500K of gain can be tax-free if you're married and live there long enough. There's even a military extension if you have to move due to orders, which is a huge bonus most service members don't know about. But you may even decide to keep it as your first investment property, you’d have little down and probably a lower interest rate than you could find otherwise, and you could always use it as leverage for other investments. The key is to use this property as a stepping stone, which means find one that is a reasonable price and you see has growth potential (I like what Cameron said above about the Warren Buffett quote).

    As you grow in real estate, keep taxes in mind because that’s where a lot of wealth is built as you will in all of the forums on here. Things like depreciation, write-offs, and capital gains planning really start to stack up over time. You'll eventually want to work with a CPA to make sure you're taking advantage of everything your real estate has to offer and see how it interplays with your current income streams, making sure that it aligns with your overall financial picture. There are also some other military-specific tax strategies out there you might consider and layering real estate strategy on top puts you in a really strong spot.

    Honestly, you can’t go wrong with what you’re considering. Good luck and happy to connect!

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  • Member since 2024 · 14 posts · 7 votes
    10mo
    Quote from @Ashish Acharya:

    Hey Ethan! Welcome to BiggerPockets! The questions you’re already asking tell me you’re going to do really well in real estate because you’re doing your homework upfront. You’ve already gotten some great answers, but I just wanted to emphasize the house-hack angle, especially from the tax side. House hacking lets you live in the property, have tenants help pay your mortgage, gain hands-on landlord experience, and even write off a portion of expenses like mortgage interest, repairs, and utilities.

  • Using your VA loan is definitely a good route as it lets you get in with almost no upfront cost (which is awesome), and if you go the live-in flip route, you may qualify for the Section 121 exclusion, meaning up to $500K of gain can be tax-free if you're married and live there long enough. There's even a military extension if you have to move due to orders, which is a huge bonus most service members don't know about. But you may even decide to keep it as your first investment property, you’d have little down and probably a lower interest rate than you could find otherwise, and you could always use it as leverage for other investments. The key is to use this property as a stepping stone, which means find one that is a reasonable price and you see has growth potential (I like what Cameron said above about the Warren Buffett quote).

    As you grow in real estate, keep taxes in mind because that’s where a lot of wealth is built as you will in all of the forums on here. Things like depreciation, write-offs, and capital gains planning really start to stack up over time. You'll eventually want to work with a CPA to make sure you're taking advantage of everything your real estate has to offer and see how it interplays with your current income streams, making sure that it aligns with your overall financial picture. There are also some other military-specific tax strategies out there you might consider and layering real estate strategy on top puts you in a really strong spot.

    Honestly, you can’t go wrong with what you’re considering. Good luck and happy to connect!


  •  Thank you for the great reminder on the tax savings of real estate (and its potential to grow wealth)! If I'm not mistaken, the military exception of Section 121 states that an individual can, "Suspend the 5-year period for up to 10 years during which they are on qualified official extended duty." So, if I am understanding this correctly - it essentially reads that if a service member has lived in the home for the qualified amount of time (i.e. at least 24 months or 730 days) and is called on official orders forcing him or her to move (more than 50 miles from their home), the individual "suspend" the 5-year holding period leading up to the date of the sale by 10 years, correct? 

    So, putting it all together (assuming a consequential order of events here for ease) - this *could* allow a service member to purchase a quality real estate asset, live in it for the required amount of time (i.e. 24+ months), receive official military orders requiring a move, hold the property for no more than 15 years from the original date of sale, and then sell the property with a capital gains tax exemption of up to $500,000 (assuming MFJ)?

  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    10mo
    Quote from @Ethan Slater:
    Quote from @Ashish Acharya:

    Hey Ethan! Welcome to BiggerPockets! The questions you’re already asking tell me you’re going to do really well in real estate because you’re doing your homework upfront. You’ve already gotten some great answers, but I just wanted to emphasize the house-hack angle, especially from the tax side. House hacking lets you live in the property, have tenants help pay your mortgage, gain hands-on landlord experience, and even write off a portion of expenses like mortgage interest, repairs, and utilities.

  • Using your VA loan is definitely a good route as it lets you get in with almost no upfront cost (which is awesome), and if you go the live-in flip route, you may qualify for the Section 121 exclusion, meaning up to $500K of gain can be tax-free if you're married and live there long enough. There's even a military extension if you have to move due to orders, which is a huge bonus most service members don't know about. But you may even decide to keep it as your first investment property, you’d have little down and probably a lower interest rate than you could find otherwise, and you could always use it as leverage for other investments. The key is to use this property as a stepping stone, which means find one that is a reasonable price and you see has growth potential (I like what Cameron said above about the Warren Buffett quote).

    As you grow in real estate, keep taxes in mind because that’s where a lot of wealth is built as you will in all of the forums on here. Things like depreciation, write-offs, and capital gains planning really start to stack up over time. You'll eventually want to work with a CPA to make sure you're taking advantage of everything your real estate has to offer and see how it interplays with your current income streams, making sure that it aligns with your overall financial picture. There are also some other military-specific tax strategies out there you might consider and layering real estate strategy on top puts you in a really strong spot.

    Honestly, you can’t go wrong with what you’re considering. Good luck and happy to connect!


  •  Thank you for the great reminder on the tax savings of real estate (and its potential to grow wealth)! If I'm not mistaken, the military exception of Section 121 states that an individual can, "Suspend the 5-year period for up to 10 years during which they are on qualified official extended duty." So, if I am understanding this correctly - it essentially reads that if a service member has lived in the home for the qualified amount of time (i.e. at least 24 months or 730 days) and is called on official orders forcing him or her to move (more than 50 miles from their home), the individual "suspend" the 5-year holding period leading up to the date of the sale by 10 years, correct? 

    So, putting it all together (assuming a consequential order of events here for ease) - this *could* allow a service member to purchase a quality real estate asset, live in it for the required amount of time (i.e. 24+ months), receive official military orders requiring a move, hold the property for no more than 15 years from the original date of sale, and then sell the property with a capital gains tax exemption of up to $500,000 (assuming MFJ)?

    You’ve got it right, Ethan! The military exception to Section 121 allows you to suspend the 5-year holding period for up to 10 years while on official orders. This means you could live in the home for 2 years, get called away on orders, and still sell the property within 15 years of purchase with the $500K capital gains exemption (if MFJ).

    Just make sure you meet the 2-year residency requirement before the move, and you’ll be good to go.

    Good luck, and happy to connect anytime! 

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