First property: Duplex or live in fix/flip

11 Replies

Hey everyone, 

Last year I flipped 2 manufactured homes to get my foot in the door, however now I'm beginning to look into something a little more substantial. I'm wrapping up the CPA exam, getting all my financing ducks in a row, and trying to decide which route to go when I purchase in 6 months. 

Additionally, I'm looking to relocate to Charlotte in 2 years. Their market has much better cash-flow and lower priced options than the Seattle area market, but doesn't appreciate as aggressively. My theory being if I can purchase in this high dollar market while living in it and potentially doing it with 0% or 3.5% down- I should. It will allow diversification in my portfolio. 

Option A: A duplex (or tri/four if affordable). 

  • $350-$375 range
  • Live in one side, lower rent than currently paying (potentially rent free depending on deal) allowing me to save more for future deals
  • Once I move I can rent both sides, and hang onto it long term just letting it appreciate in value while continuing to collect rents. 
  • 2 Bedroom units in this area would rent for $1,500 each right now if updated. 

Option B: Live in fix/flip 

  • $200-260k range (tough to find in this market) 
  • Live in it for 2 years to avoid capital gains 
  • Renovate the house while living in it 
  • We average 3% appreciation annually in my market 
  • I'd be looking at a home in the realm of $200k, $25k Reno, $300k-$350k sale price in 2 years. 
  • Sell before moving to NC, allowing me to have cash to begin investing with there or
    • Rent after I move, Assuming $1700 range- and count on future appreciation in market, and added benefit of diversification in portfolio. 

What do you guys think? I know I didn't go into details and I'll obviously run numbers more closely. I am just trying to strategically plan my first move. Any and all input greatly appreciated :) 

Oh right right you guys are going to ask about my goal/ plan ect....

I want to build a portfolio of passive income....The Seattle market is really tough to cash flow on rentals comparably to other places though, so I'm not necessarily sure this will play into that plan. 

This specific purpose of this property would be:

  • the flip to build some funds, which I'm short on, to put me in a better place for future deal.  or
  • Long term hold more for the purpose of appreciation than rental income, although I'd still require it to cash flow...it just wont be as well as a property in say milwaukee would/could. It gives me a little safety net I feel because the market here has been fairly stable/appreciating comparable to lower priced markets- so if we take a hard hit again I don't only own properties in the sub $100k low end rental range. 

I'd go with whatever can generate the most cash for you when you move, i would not recommend a long distance rental.  

@Natalie Kolodij I think you are sought of on the right path but may be thinking too much at this point, I don't disagree on having multiple options, but here is how I would lay it down: (also I am not a big savy investor like other BP members, please don't hammer me on what I have to say :-) ) 

1. If you want to flip then yearly appreciation rates should not matter much, as that will be a short term investment anyways, you are going to hold that property for max 6 months, all you need is a sweet deal below MV where you are pour your love into it make it look nice and sell it for the MV or little over the current MV

2. Yes you would have more cash flow than Seattle but cash flow can mean different for different people

a. Are you just looking for a stable neighborhood with good tenants and constant positive cash flow with no appreciation - yes, there are such investors - are you this one?

b. Are you looking for an investment in a A grade neighborhood which does not give much cash flow , kinda break evens but has a potential of appreciation - yes, there are such investors - are you this one?

c. Are you looking for an investment in a C/D neighborhood with lots of positive cash flow and some risk , may be hand it over to a good PM company and have another set of eyes looking at your property - yes, there are such investors - in fact I think this is where majority of the investors belong - are you this one?

d. Lastly, do you want a nice cash flowing property in a B+ neighborhood with very nice tenants and gives your yearly satisfactory appreciation - Well!! there is a long queue for this and you need to be in line and may be get lucky , its not 2009/2010

I am planning to get started in Charlotte sometime soon so good luck to you!!

@Natalie Kolodij
My opinion is not to bank on appreciation and go with sheer cash flow numbers to stay float in worst case scenario.

Buying a multifamily rental that cash flows with high leverage (FHA owner occ. 3.5% down loan) and being able to leverage your owner occupied status for a create cash on cash return is one of the best investments I ever made. Just be sure to run your numbers as if it were a rental, if you have strong cash flow after PITI, repair allowance and vacancy, hold that property long term and start building real, inflation adjusted, wealth. Not to mention the tax advantages moving forward, vs capital gains on a flip.

Kevin

Why not have your cake and eat it too? Buy (and move into) a duplex/triplex in the area where you are moving to that is in disrepair and get a good deal. Fix it up and build rapid equity. Generate passive income in an easy to manage way, and then repeat a year later, using the equity you've built and the rent you are generating to help you refinance and repeat or buy the next one!

You get to do a live in flip AND create a rental investment at the same time this way.

There is downside risk in your plan, especially in option B.  What would happen if your units not only don't appreciate but lose value?  The amount people spending on housing relative to their income is quite high in Seattle and as a result I think you have some headwinds.  If you do a bad deal in the Seattle area it could hold you back in your plans when you move to Charlotte, which is where you have the opportunity to money much quicker.

Charlotte is one of the greatest if not greatest real estate markets in the US.  I think you'd be better off using your Seattle salary to plant a flag in Charlotte.  The rental deals in Charlotte are much better then those you're likely to find in Seattle.  The deals you described are quantitatively poor relative to deals you could do in NC.  Look in doing a deal in Charlotte for sure before you make a decision you regret.

Gregory Walter, Real Estate Agent in NC (#276520)
704-685-5996

@Natalie Kolodij Your decision to move to Charlotte is a fabulous decision if I might say so myself! You'll be about halfway between the beach and the mountains and there's plenty to do. On the investing side, your option A has a big red flag. You will be collecting $3,000 a month in rents and your purchase price is $350k. This won't cashflow. You may collect rents for a few months, pay your mortgage and think it cashflows, but over the long term when you incorporate vacancy, maintenance, management and CAPEX you'll find it don't cashflow long term. If my math is correct, $3k/$350k, this isn't even 1%. Seasoned investors stick to 2% rule to ensure cashflow. Another problem is most likely a property with these numbers will increase your DTI, so you'll be able to buy one, two, maybe three depending upon your income and how much this changes your DTI. But at some point you'll hit the max DTI and the bank will decline the next loan. Again, you can use your specific income, debt and the property information to verify that it indeed will increase your DTI, by how much and how many of these you can purchase before hitting the bank max, but being it's under 1% I'd be surprised if it didn't increase your DTI.

Hello @Jason Smith

Thank you for the input. Oh ya I know the 2% rule- unfortunately in this market it's close to impossible. 

$3k on $350 is even an optimistic stretch for a duplex in this area. 

Single family homes here start at about $300k and rent for $1600-$2000. Seattle area is lucky to hit .5% on average. It's brutal for rentals. It's why I don't want to build a portfolio here...But having something that breaks even long term and helped to diversify my holdings I thought might be fairly safe. The Seattle market has consistently gone up 3% annually over the last 20 years - so although no superb cash flow...does offer kind of a buffer if the less drastic NC market with my cash flowing rentals (future potential rentals that is) dove down. 

I hadn't taken into account the DTI element of it- Thank you for bringing that up.

Right now I'm leaning toward a live in fix/flip. It's going to be tough to find in this market but If I can get above $30k tax free to bring to NC and start investing with there that would be a huge benefit. 

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