First Rental Property: Single-Family Home vs. Duplex/Triplex/+

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First Rental Property: Single-Family Home vs. Duplex/Triplex/+

Jacob ShoesmithPro Member
New to Real Estate · Houston, TX · Member since 2015 · 14 posts · 2 votes

Hello,

Thanks in advance to all answers and help. I joined BP in high school (2014) but since college and my first job, I have slipped away in staying up-to-date. However, at 24 years old (almost 25) and likely to be married over the next two years, I want to begin investing! My girlfriend is very frugal and is 100% behind me in investing in rental properties down the road. She knows I want to have a few properties by the time I am 30 years old.

That being said, I have a few questions:

  1. Which comes first: our first house as a marriage or a rental property? (seems like the former is the obvious choice)
  2. Single-family home or multi-family property for our first rental? Duplexes sound greta but are hard to come by. I feel like most duplex units for sale are actually only one of the two units, not the whole property. Either I am not looking correctly or they are hard-to-find/all currently owned.
  3. Are college areas a good place to start? I know all the pros and cons with college kids since I've read about them and was a renting college student at one point. I feel that properties near college towns always seem to get tenants, no matter what.
  4. Living in Houston currently, former Texas A&M Aggie. For my first property it seems best to live close-ish to the property so I can manage it and get it going the first time around. UH is not in a great area of Houston but HBU is. On the other hand, I have always thought of investing in properties in College Station since I am familiar with the area and will likely have Aggie kids attending the school in the future. However, even though it is only 1.5 hours away from Houston, it is still "far" since I am a full-time employee and part-time in grad school.
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Andrew Powers
Investor · Cincinnati, OH · Member since 2018 · 304 posts · 185 votes
5y

Hi Jacob, a big part of my answers to your questions are covered by 3 things: strategy, financing, comfort level. 

-Strategy: is your goal to conserve as much cash up front when purchasing a home or pay it off as much / as quickly as possible? Also are you looking to purchase a home so you can live for free or are you looking for long term appreciation?

-Financing: you can get different loans for different types of properties (unless you plan on cash). Here are some examples of low down payment loans, but investigate more please... Example 1: FHA can cover a single family home or up to a 2 unit home (I believe) with down payment around 3.5% to 5%. Example 2: first time homebuyer conventional loan for single family house allows 3% downpayment.

-Comfort level: do you and your spouse have a minimum level of comfort? Can you purchase a large single family and rent out the rooms while sharing common living areas like kitchen and bathrooms? Or would the requirement be that you have your own living space separate from tenants?

Use the BP calculator to run numbers and be conservative. Know the numbers and be real with them before jumping in on something and hoping it works... also balance this with knowing this is just your first house. There's a lot of learning in just going through the process for the first time.

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  • Dan L.
    Rental Property Investor · Albany, NY · Member since 2019 · 125 posts · 47 votes
    5y

    Congratulations on deciding to get into it! My first thought is don't wait, jump in!

    If I understand your situation correctly, I would buy myself a single-family home right now, for you to live in for the next year or so, that you will eventually move out of and rent out. Do this while you don't have kids and all that other baggage. Depending on your finances, you might be able to qualify for an FHA loan with only 3.5% down. It's a great deal.

    Run the numbers on any house before you buy it to make sure that it will be a good rental property when you move out. You want to make sure it is profitable. In my area, we invest for cash flow rather than appreciation. So I make sure that any house that I buy will cash flow nicely.

    I am a big fan of single-family houses, especially in the beginning. You don't have to deal with tenant drama as much, tenants take care of the property themselves, and in fact in my experience, tenants improve your property for you. Of course that has to do with tenant screening and buying the right property in a good location so the right tenants want to move in. Personally I would not get involved with College rentals, not only because of the annoyance of dealing with students, but with Coronavirus I would not be certain colleges will be “in person”. My thought is colleges will become more virtual, as they have been doing anyway.

    Good luck!

    0Reply
  • Andrew Powers
    Investor · Cincinnati, OH · Member since 2018 · 304 posts · 185 votes
    5y

    Hi Jacob, a big part of my answers to your questions are covered by 3 things: strategy, financing, comfort level. 

    -Strategy: is your goal to conserve as much cash up front when purchasing a home or pay it off as much / as quickly as possible? Also are you looking to purchase a home so you can live for free or are you looking for long term appreciation?

    -Financing: you can get different loans for different types of properties (unless you plan on cash). Here are some examples of low down payment loans, but investigate more please... Example 1: FHA can cover a single family home or up to a 2 unit home (I believe) with down payment around 3.5% to 5%. Example 2: first time homebuyer conventional loan for single family house allows 3% downpayment.

    -Comfort level: do you and your spouse have a minimum level of comfort? Can you purchase a large single family and rent out the rooms while sharing common living areas like kitchen and bathrooms? Or would the requirement be that you have your own living space separate from tenants?

    Use the BP calculator to run numbers and be conservative. Know the numbers and be real with them before jumping in on something and hoping it works... also balance this with knowing this is just your first house. There's a lot of learning in just going through the process for the first time.

    2Reply
  • Dillon Dale
    Real Estate Agent · Owatonna, MN · Member since 2017 · 221 posts · 152 votes
    5y

    @Jacob Shoesmith hey Jacob, you're asking good questions so I think you're headed in the right direction. Here's what I think

    1) Both. Meaning, buy a multifamily property and live in one unit and rent the other(s). It's only a minor inconvenience as opposed to living in a single family, and it will put you so much farther ahead financially by having a tenant pay your mortgage while you live there for close to nothing out of your own pocket.

    2) It depends. Multifamily usually cash flows better, but you might not be able to have tenants pay all utilities, you'll likely have to pay for the lawn care etc, so there could be more expenses involved that could negate the additional rent. So essentially, run the numbers to see what works best in your area

    3) Demand should always be strong, but you will have a higher turnover rate, which leads to a higher vacancy cost. Be sure you factor that in when running your numbers. Also, plan for more wear and tear in your numbers as well.

    4) If you can self manage you will learn so much. It's not necessary, but I would highly recommend it when starting out

    Good luck!

    0Reply
  • David SchmiedicheBusiness Member
    Real Estate Agent · College Station, TX · Member since 2020 · 124 posts · 68 votes
    5y

    Hey Jacob!

    Congratulations on starting so early! The one thing everyone says they wish they did differently is they wish they started sooner. Congratulations on letting this not be you! I am a realtor in College Station and work primarily with investors. Hopefully, their advice to me will help answer your questions. Every investor goes about investing differently to fit their personal needs and as for your questions here is the best advice I can give you

    1. Which comes first, Single Family or Investment: Investors do this both ways depending on which way works better for them. My receptionist almost two years ago bought a quadplex with her Husband using the VA Loan and putting 0% down. They have been living rent-free and just recently bought their first Single Family Home. You can do the same thing using the FHA Loan. Both of them are very frugal and were fine living in and managing a quadplex to live rent-free. If your girlfriend is truly frugal and fine living in a small unit this financially makes the most sense. On the contrary, one of my clients had been renting out one side of a duplex and was ready to get out and into a single-family house that they later turned into a rental property. Talk over the options with your girlfriend and see which option would work best for you!

    2. Single-family or Multi-family first: Again both of them have their pros and cons. When deciding this I would focus less on the pros and cons of renting and owning them and more on the loan qualifications you are looking for. My father and I are looking at a duplex to add to our portfolio and when talking to a loan officer about financing they brought to our attention that multi-family homes require a 25% Down Payment using a conventional loan instead of the standard 20% because they are considered "Riskier Investments." Going back to your first question this is another reason my assistant bought a quadplex. They were able to purchase a multifamily home with less than 25% down. You will have to run the numbers to see if it still makes financial sense. As for finding a duplex get in contact with a local realtor that has experience working with investors. They will be able to help you find duplexes were you aren't purchasing only one side. For the Houston area, there is an agent that I would recommend. Let me know if you are interested!

    3. Are college areas a good place to start: You are correct that they never have trouble finding tenants. During the 2008 Housing Crash College Station was hardly affected due to College Students having to have a place to live while going to school. With everything going on with Covid right now no one knows what the future holds. There is some discussion on how COVID will change in-person classes and very few people that I know are concerned with the College Station rental market. Even over the past few months with COVID and social distancing the College Station market is still running strong and never missed a beat. ultimately deciding if you want to invest in college towns is down to the pros and cons of college students. Like you said you know the pros and cons of the decision is up to you and your girlfriend.

    4. Should you live close-ish to your first investment: You should always manage your first investment yourself and invest in areas that you are familiar with. A lot of people that are in Houston invest in College Station and manage it themselves. 1.5 hours is a decent drive and isn't terribly long if something does come up. Unless your property has a leaking toilet that is flooding your property most everything can wait until a weekend or after a workday to have fixed.

    I hope that this helps answer your questions! If you do have any further questions don't hesitate to reach out! You can google my name and find all of my contact information.

    [email protected]979-739-0921
    Keller Williams Realty Brazos Valley522 Reviews
    View Page
    0Reply
  • David SchmiedicheBusiness Member
    Real Estate Agent · College Station, TX · Member since 2020 · 124 posts · 68 votes
    5y

    Hey Jacob!

    Congratulations on starting so early! The one thing everyone says they wish they did differently is they wish they started sooner. Congratulations on letting this not be you! I am a realtor in College Station and work primarily with investors. Hopefully, their advice to me will help answer your questions. Every investor goes about investing differently to fit their personal needs and as for your questions here is the best advice I can give you

    1. Which comes first, Single Family or Investment: Investors do this both ways depending on which way works better for them. My receptionist almost two years ago bought a quadplex with her Husband using the VA Loan and putting 0% down. They have been living rent-free and just recently bought their first Single Family Home. You can do the same thing using the FHA Loan. Both of them are very frugal and were fine living in and managing a quadplex to live rent-free. If your girlfriend is truly frugal and fine living in a small unit this financially makes the most sense. On the contrary, one of my clients had been renting out one side of a duplex and was ready to get out and into a single-family house that they later turned into a rental property. Talk over the options with your girlfriend and see which option would work best for you!

    2. Single-family or Multi-family first: Again both of them have their pros and cons. When deciding this I would focus less on the pros and cons of renting and owning them and more on the loan qualifications you are looking for. My father and I are looking at a duplex to add to our portfolio and when talking to a loan officer about financing they brought to our attention that multi-family homes require a 25% Down Payment using a conventional loan instead of the standard 20% because they are considered "Riskier Investments." Going back to your first question this is another reason my assistant bought a quadplex. They were able to purchase a multifamily home with less than 25% down. You will have to run the numbers to see if it still makes financial sense. As for finding a duplex get in contact with a local realtor that has experience working with investors. They will be able to help you find duplexes were you aren't purchasing only one side. For the Houston area, there is an agent that I would recommend. Let me know if you are interested!

    3. Are college areas a good place to start: You are correct that they never have trouble finding tenants. During the 2008 Housing Crash College Station was hardly affected due to College Students having to have a place to live while going to school. With everything going on with Covid right now no one knows what the future holds. There is some discussion on how COVID will change in-person classes and very few people that I know are concerned with the College Station rental market. Even over the past few months with COVID and social distancing the College Station market is still running strong and never missed a beat. ultimately deciding if you want to invest in college towns is down to the pros and cons of college students. Like you said you know the pros and cons of the decision is up to you and your girlfriend.

    4. Should you live close-ish to your first investment: You should always manage your first investment yourself and invest in areas that you are familiar with. A lot of people that are in Houston invest in College Station and manage it themselves. 1.5 hours is a decent drive and isn't terribly long if something does come up. Unless your property has a leaking toilet that is flooding your property most everything can wait until a weekend or after a workday to have fixed.

    I hope that this helps answer your questions! If you do have any further questions don't hesitate to reach out! You can google my name and find all of my contact information.

    [email protected]979-739-0921
    Keller Williams Realty Brazos Valley522 Reviews
    View Page
    0Reply
  • Jacob ShoesmithPro Member
    OP
    New to Real Estate · Houston, TX · Member since 2015 · 14 posts · 2 votes
    5y
    Originally posted by @David Schmiediche:

    Hey Jacob!

    Congratulations on starting so early! The one thing everyone says they wish they did differently is they wish they started sooner. Congratulations on letting this not be you! I am a realtor in College Station and work primarily with investors. Hopefully, their advice to me will help answer your questions. Every investor goes about investing differently to fit their personal needs and as for your questions here is the best advice I can give you

    1. Which comes first, Single Family or Investment: Investors do this both ways depending on which way works better for them. My receptionist almost two years ago bought a quadplex with her Husband using the VA Loan and putting 0% down. They have been living rent-free and just recently bought their first Single Family Home. You can do the same thing using the FHA Loan. Both of them are very frugal and were fine living in and managing a quadplex to live rent-free. If your girlfriend is truly frugal and fine living in a small unit this financially makes the most sense. On the contrary, one of my clients had been renting out one side of a duplex and was ready to get out and into a single-family house that they later turned into a rental property. Talk over the options with your girlfriend and see which option would work best for you!

    2. Single-family or Multi-family first: Again both of them have their pros and cons. When deciding this I would focus less on the pros and cons of renting and owning them and more on the loan qualifications you are looking for. My father and I are looking at a duplex to add to our portfolio and when talking to a loan officer about financing they brought to our attention that multi-family homes require a 25% Down Payment using a conventional loan instead of the standard 20% because they are considered "Riskier Investments." Going back to your first question this is another reason my assistant bought a quadplex. They were able to purchase a multifamily home with less than 25% down. You will have to run the numbers to see if it still makes financial sense. As for finding a duplex get in contact with a local realtor that has experience working with investors. They will be able to help you find duplexes were you aren't purchasing only one side. For the Houston area, there is an agent that I would recommend. Let me know if you are interested!

    3. Are college areas a good place to start: You are correct that they never have trouble finding tenants. During the 2008 Housing Crash College Station was hardly affected due to College Students having to have a place to live while going to school. With everything going on with Covid right now no one knows what the future holds. There is some discussion on how COVID will change in-person classes and very few people that I know are concerned with the College Station rental market. Even over the past few months with COVID and social distancing the College Station market is still running strong and never missed a beat. ultimately deciding if you want to invest in college towns is down to the pros and cons of college students. Like you said you know the pros and cons of the decision is up to you and your girlfriend.

    4. Should you live close-ish to your first investment: You should always manage your first investment yourself and invest in areas that you are familiar with. A lot of people that are in Houston invest in College Station and manage it themselves. 1.5 hours is a decent drive and isn't terribly long if something does come up. Unless your property has a leaking toilet that is flooding your property most everything can wait until a weekend or after a workday to have fixed.

    I hope that this helps answer your questions! If you do have any further questions don't hesitate to reach out! You can google my name and find all of my contact information.

    Your response is appreciated, as well are the other folks who shared thus far. I am interested in that agent if they know duplexes specifically! 

    0Reply
  • Gregory SchwartzBusiness Member
    Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Jacob Shoesmith there are a number of great areas start investing within 2 hours of Houston. Don't let a full-time job stop you. As @Brandon Turner often says, "part of a deal is better than no deal at all". If you like the BCS market then find a boot on the ground guy to help you and see if you can form a partnership. I personally know that @David Schmiediche is a very solid resource who knows the rental market here and can provide a lot of insight. 

    To help answer your other questions I would start with your goals (40yr, 10yr, 5yr or 1 yr) then reverse engineer to determine your next step. 

    Ex: I want to supplement my retirement (30 years from now) with real estate providing 50-100k per year passively. This would take require about 16 rentals paid off free and clear. For this to happen you could plan to buy 1 SFH every year for the next 16 years then spend the remaining 14 years paying off the mortgages.

    My 5-year goal is to syndicate large multifamily. Reverse engineering that goal I house hacked a 4 plex. Now with that experience under my belt, I'm focusing on 8-20 unit complexes with partners. 

    [email protected]443-812-0357
    Schwartz Realty Group5117 Reviews
    WebsiteView Page
    0Reply
  • Sandy Sawyer
    Realtor · Houston, TX · Member since 2017 · 177 posts · 68 votes
    5y

    Hi Jacob! I’ve learned so much from these people on the forums & read their books. Your needs & wants are about to shift all over the place. I suggest that every step you take have a backup plan and exit strategy. You work full time. I think you might try home ownership on for size first and get familiar with paying related bills and how to maintain a house. This alone will open your eyes to whether you would like to take on the responsibility of having other people depend on you for their housing needs. Thinking ahead to sending your future babies to College Station for school, I suggest a house purchased today would be 20 years older by that time, focus on here & now & maybe only 5 years ahead. I’m in Houston too, lemme know how I can help.

    1Reply
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