Cash flow or/and personal home?

8 Replies

Hi BP!  This may be a long intro post, so stay with me here!  I'm looking for some honest and thoughtful feedback from some like minded people here.

I've been looking to start RE investing for a couple years now, but ended up delaying to ramp up my recruiting company instead as it has very little overhead and it cash flows like a champ.  I've hired a few people this year and it's going well.  At the time, I contemplated fix n flip or wholesale in Denver, but the market is insane and honestly, I make more money from recruiting.

Since then, I've gotten married, we welcomed our first kiddo, and I've paid off over $110K in personal and business debt for myself and my wife and I've also hired 2 recruiters who I've trained and soon should be bringing in revenue for the business.  We've also been traveling for fun around Europe while I run the business abroad!  Super blessed!

We're set to come back to the States at the beginning of September and we're looking to physically live in SLC for personal reasons. I've heard good things about the market for appreciation, but the deals I've been looking at seem to cash flow pretty poorly. I'm looking at multifamily, 4-plex, maybe 3/2-plex, not SFH. We've thought of house hacking a duplex, but we need at least a 3 bed because I work from home and I've not really seen a setup that works for our family. We might be open to a house hack in SLC, and we're still keeping the option on the table but we're fairly private people and the idea of sharing a wall with a tenant doesn't sound ideal at this stage in life.

Because of this, we've decided to invest in a different market and we're strongly targeting Cincy and Louisville as the multifamily cash flow looks good, even if the appreciation doesn't and we have some personal ties to both geographies.

So here's the dilemma for when we set up shop in SLC do we:

A. Rent a house and pay some else's mortgage for a time while building up a portfolio in long distance markets?  Concern being that it's not our house and we don't benefit anything and also being that SLC is appreciating so our entry would be more costly after x time period.

B. Buy a SFH in SLC that needs some work and use this as a home base that we can force appreciation and possibly flip (or just live in/HELOC) to have stability for our family while I continue to grow my recruiting business and later invest in other markets?

I realize this is a personal decision for my wife and I, but we're interested at what some pros and cons of either option the BP community might come up with.

Thanks in advance!

Tim & Suse Gerrells

Buy the househack first.

The loan terms are the best, you have to put the least down and you'll learn a ton.

A personal home is not an investment and is essentially a money pit. Count it as a liability and get it when you're already doing well with your investing.

If you do it right you could get a househack multi in your name and then a year later in your wife's name.

I never see my tenants or have noise issues. Just buy a househack that works for you!

Originally posted by @Jordan Moorhead :

Buy the househack first.

The loan terms are the best, you have to put the least down and you'll learn a ton.

A personal home is not an investment and is essentially a money pit. Count it as a liability and get it when you're already doing well with your investing.

If you do it right you could get a househack multi in your name and then a year later in your wife's name.

I never see my tenants or have noise issues. Just buy a househack that works for you!

This is true Jordan, assuming he has W2 or 1099'd his wife so she has qualifying income to qualify but most business owners dont usually have the foresight to plan this ahead of time. Qualifying with a self employment scenario requires income taxes for 2 years min to be considered stable and usable income from a financing context.

I have doctors who operate 1099/self employed with big clinics/hospitals who 1099/W2 their other spouse to generate two individuals with qualifying power capability to each individually purchase their own 10 financed fannie mae loans.

The income splitting planning is both a tax planner and mortgage planning expertise combined. Usually only the rich have all members of the wealth team work together (family office) where all professionals are under one roof working 24-7 to plan the wealth of one or a few families.

For the everyday person like ourselves we have to go out on our own to find the professionals and put that team together. 

@Timothy Gerrells my vote is to get your primary residence first. With your income, if what you stated is true, then you really don't even need to house hack or do the fixer-upper. Focus on your business. Grow it and use it to generate income which you can invest in real estate. Doing a house hack or a fixer-upper will only result in distraction from your business with probably negative impact to net worth.

@Jordan Moorhead thanks for the reply and your feedback. I agree with everything you're saying in theory and we're certainly still toying with a house hack idea if the right property presents itself. Yet, there are other factors we're weighing, such as we have a 1 year old (will be 1.5 when we get to SLC) and I need space and quiet for my business calls as I tend to be on the phone as much as possible. apartment style living can be difficult with this setup as we've been experiencing working abroad in various places. I'm just unsure if a duplex setup would work. Possibly a larger side by side? But then I still wonder if the cashflow makes sense in SLC or if it makes more sense to rent and buy cash flowing properties in a different location. I sometimes think a house hack might have been a better play when I didn't have a family with a baby and space needs for the business. Thanks for the food for thought however! Much to take into account!
@Bill S. Appreciate the reply and feedback. But would a SFH purchase be better than renting for a few years? At what point does that make more sense? If I buy a SFH, most of the interest will be paid on the front end which means that for the first few years, I'm losing money with very little equity gain and no cash flow. Unless the market appreciates a lot, I'm not a whole lot better off than renting in some ways, unless I'm missing something? It's not until several years down the line that equity starts to look better. I could get it set up to do double principle payments? My thought was to rent first, and stick the leftover cash back into investment properties that generate actual cash flow. If/when we decide to buy a primary residence, we could just go for a major renovation project that we work on the side or something like that and make "our own" that we buy in cash down the road for a discount. I really appreciate the feedback and you're point about distraction is one of my biggest concerns here because the further away from my business I get, the more I'm losing opportunities there to close more deals and this make more money for future investment properties. It's not a multi-million business yet, but we're pushing the limits right now and should have plenty of investment income this year now that we're out of debt. I think my biggest reason to either buy SFH or rent is to maintain stability on the home front and focus on the business as you said as well. Thanks again for the feedback!
@Albert Bui Great points there Albert! We're in talks today with my tax guy and we plan on bringing up W-2 for my wife for this (and other tax incentive ideas). Thanks for the thoughts!

@Timothy Gerrells I've never had noise issues in my duplex and work from home all the time. 

There are deals in any city so I'm sure you'll find something if you're interested! 

@Timothy Gerrells I apologize that it's been a bit since you asked the questions. I'll give my Opinion for what it's worth. 

Unless you are planning to move in 2 years or less, the conventional wisdom is that it is better to buy than rent. Obviously there are exceptions but nothing you have said would qualify as an exception in my mind. Based on what you have stated, your business returns more dollars for time than investing would at this stage. Your approach to buy out of state for cash flow is counter to your financial position. Since you don't need the cashflow, then why not buy quality that is going to have fewer headaches. Just 10 paid for SFR in your own market would be a very comfortable living. I think you would be way ahead to buy a retail priced home for your family, focusing on your business and then buying quality rental homes in your local market. Time flys and before you know it those homes will be paid off and your business will be throwing off cash and you will have lots of options. Much better than buying in an out of state market and spending all kinds of time and energy making that work.

Again, focus on your business and growing it. Buying a fixer and living in it with your family is way too much brain damage for the meager returns. Look at the hourly wage you earn when working your business and compare that to the hour wage of a contractor/project manager or construction worker. Not worth your time to do those activities. 

As for the cost, the interest portion of your payments is tax deductible. No part of rent is tax deductible. A tax deduction is the not reason to buy but it is a benefit vs renting.

Most live in flips are done because the owner has more time than money. If you paid off $100k in debt in the last year, you have more money than time. Value your time and the time with your loved ones. 

Focus is the key to success. Your approach has 3 components, investing out of state, buying a fixer and living it, and your business. Focus on your business and use it to fund your conservative real estate investing. Do this and you will be financially free faster than dividing your interests and trying to conquer the world in 3 fronts.

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