Lateral Move vs Straight Investment Property

3 Replies

My wife and I are fledgling investors and like many want to build our passive income and net worth through investment properties. Currently, we have one property in Huntsville, AL that once was our home and is now a rental property. It is cash flowing and we are debating if we should do the same thing or buy a straight investment property. I know there are benefits to moving lower down payments etc, but what benefits are there to buying an investment property over just moving to another house and converting our current home into a rental property? Thank you in for your help.

Hi @Thomas Coke , welcome to the BP Forums!  

The primary advantage to owner-occupying an investment property is the low down payment and the tax advantages on sale if you have lived in it for 2 out of the 5 previous years.  That's really it.  To purchase it without occupying it means that you won't have access to extremely long fixed rate loans with a high Loan to Value ratio, and you wouldn't be exempt from the capital gains taxes due on sale if you sold it in the next 5 years.

However, as simple as those two factors are, they are whoppers. If you guys are willing to make a lateral move . . .or even better if you're willing to through that type of thinking to the wind (because the only people who would call this a lateral move are people who will likely never achieve financial independence, or live an intention-driven life) and buy a duplex, triplex, or fourplex and owner occupy it. If you look at the cash on cash return of that investment now you'll be impressed. If you look at it 20 years in the future, when you'll still have an interest rate locked in at a freakishly (and artificially) low rate, you'll be fist-pumping excited!

@Will Fraser Thank you for the reply! My wife and I have considered purchasing a Multifamily home as well and are exploring all options. The unfortunate side is in the area we currently live (Fayetteville, NC) finding a Multifamily home to meet our needs or even at all is challenging. The multifamily homes in our area are too small for our needs (family size). We have however thought of purchasing a lot and building a multifamily but the ROI doesn't seem to be there. Grant it, like you said its not about the now its about the end game.

@Thomas Coke - your experience with your rental here in Huntsville is not necessarily relevant to your new city - in other words, I would not assume that how things played out in Huntsville will be the same in your new location, given how ridiculous the market here is right now for both rentals and owner-occupied. Would recommend finding an agent (or a local REI group) in your current market, getting some feedback on comps/rental numbers, and then run the numbers on a spreadsheet to get the answer to your question.