Case Study - Single Family or Multi-Family with Low Capital

2 Replies

Keynote: My goal is cash-flow from renting part of a house I live in, however Multi-family units in my area aren't very positive for my current price range. Dilemma is, I am currently renting so I need to decide if I should build the capital while renting, or live in a Single Family home and get into Multi-Family when I can refinance and support a better down payment.

Long Form:

Hello all!

If you're reading this you want details. 

A little about my situation. I am a recent graduate who has been looking into owning rental properties as a side project to generate cash flow. I feel I am in a good position to start snowballing rental properties because I am 22, debt-free, work a full time job and have enough capital to entertain the idea of owning a property. I have been interested in pursuing the BRRR method for multi-family homes in London ON and feel knowledgeable enough to start looking at making offers.

My goal. Ideally I would like a multi-family dwelling priced around $250k CAN with a sizable cash-flow at 5% down - though wouldn't we all. I've looked at mainly MLS, public deals and in less savory areas to hopefully find a diamond in the rough that with a little reno could fetch a good rent. I've had little luck, which is expected but I can't help but feel trying to swim in a bigger pond than I should financially.

My barrier. A few things could make my goal more acheivable would be a more fair house price or a higher down payment (to improve monthly cash-flow). In time I can get the capital to support this - that I am not worried about - but during that time I will be renting my living space. That being said, I wonder if I should settle into a starter home first, pay into it as I save money for "My goal", and refinance that property in 2-3 years time to help cover the down payment on the Multi-family.

This case boils down to 3 questions:

1. Is it unreasonable to wait for a $250K CAN Multi-Family unit in London ON, that has sizable monthly cash-flow at an initial 5% down, living in one unit of it?

2. If it is unreasonable, would it be better to get a starter home now, save, and refinance it in 2 years for a better down payment on a Multi-Family dwelling for higher cash-flow later? Or better to keep renting, and wait patiently for this goal scenario house to come up?

3. Wild card: is there a middle path I am missing that would generate good cash-flow at low starting capital that works either while i still rent or takes me out of having to rent?

I appreciate any help you can offer. I intend to monitor this post to provide more information as you ask for it.

Thank you!

Ryan

@Ryan Medeiros

Hey Ryan, 

I know nothing about the Ontario market so I can't hope to comment there.  One thing I read out of your situation is that you have time on your side - you are only 22 after all - I think many of us here on BP are envious of where your headspace is at this time in your life.  If I could have only started ten years earlier!

If you are really eager to jump into a property look at the ways you can turn that property from a cashflow drain to a cash generating asset.  House hacking is widely regarded as the single best way for someone in your situation to gain traction on the road to financial freedom.  

  • Could you get into a single family and convert it to a duplex in some way?  
  • Could you get into a single family and rent out the rooms to buddies or Craigslist?
  • Could you play an Airbnb arbitrage game where you decorate the house nicely but cheaply (ikea!) and list the whole house for short term rental?  When its rented you could either crash on a couch with a friend or find a cheap Airbnb room to stay in temporarily and cream the difference?

There are a lot of ways to do it, the key though is to not just get into a house and 'pay in equity' and hope you can refinance in a couple years.  Take more control and figure out how you can turn a single family house into a cashflow generator while you also pay in equity on your way to larger investments.

If you are really set on doing a small multifamily, and the numbers aren't working with the MLS listings - but have some patience, consider ways you could hustle your way into a multifamily on a 1-2 year time frame.

  • Link up with the local REIA and wholesalers to see if you can get something that's house hackable that way?
  • Could you drive for dollars, find all the small multis you can and persistently contact the owners seeing if they want to sell?  
  • Can you pull a list out of the local GIS system and then do a letter writing campaign to all multifamily owners until you can find a deal?  
  • Can you contact all the local property managers, present yourself and let them know you are looking for a small multi and do they have any clients that might be interested in selling?

Whatever you decide to do, you'll get the most satisfaction and learning out of hustling to achieve the goals you set for yourself.  It won't come easy, just get out there and make it work.

Good luck!

@Ryan Medeiros The ON market is slowing down but that's primarily in/around the GTA. In particular, the Big 5 lenders are slowing the rate at which they're giving loans + stress testing every new loan. 

It would be prudent to start extensively networking with successful, local investors. They will often be your best source of on-the-ground advice. 

@Sarah Larbi runs a successful meetup group for Southern Ontario. She is also a successful real estate investor. 

@Roy Cleeves isn't too far away from you. 

Be cautious of the great advice on BP. It is American centric and many of the strategies/advice does not apply in Canada. Still a great resource but just know that things are different up north.