House Hack or Buy an investment property?

Question

I am a new Investor who wants to make the right choice in my first investment move and I have two options that have me torn. I am either thinking about selling my current home that has about $60K of equity in it and move into a large duplex, or do a cash out refinance to fund and investment property. I have about $30K of cash ready to use to support. I’ve example my thought process for both below:

1. Sell and build Duplex: my wife and I have been talking and the only way that she would be comfortable with this option is if our side of the duplex is a 4-2 with a larger kitchen, cause she loves our current home so much. The difficulties of that are the logistics of the transactions, the waiting period for the home being built and our ability to get approved for such a large investment. The benefits are free living and an ability to fund additional deals quicker.

2. Refi with Investment Property: this option is good if the right deal comes along, but won’t bolster my cash flow or my timeline to reach my goals. Ultimately this option would require similar amounts of upfront cash with not as much risk or up front benefit.

My ultimate goal is to have 5-7 properties in the next 10 years to “retire” from my 9-5 and manage my properties / have a food truck.  :) Please help me understand which option you would choose and why!

William Craft · Answer

@Sheldon Zimmerman thank you so much for your advise! I really appreciate it. :)

Sheldon Zimmerman · Answer

Good Afternoon William,

I love this question but it depends where you and your wife want to be in life. I'd recommend you do the duplex if the numbers work and house hack for a year or two. Then when you want to move to another area because of school districts or whatever reason you can keep that and find your home you both dream of. By buying the duplex with an FHA or other similar low down payment product that can keep your capital to buy an investment property. It also allows you to save up quicker because your housing bill is much less too. But your spouse needs to be on board with the idea, but just do it for a couple of years and you will be set up for the future.

Stephanie P. · Answer

I would first make sure my wife is on board with what needs to be done to maximize your financing. Using owner occupied mortgages would allow you to purchase with a lower down payment, but to use it a few times would require you to move to not commit mortgage fraud.  Move every year or so for the first few years and you'll build up your doors with the least amount of cash. As your cash flow increases, you'll be closer to your goal.  I would also buy multi unit properties so when vacancies happen, you're not bleeding cash.

I say make sure the wife is on board because if she's not, life will be miserable.

Stephanie

Stephen Brown · Answer

Have you considered the costs in building a duplex? It might just equal what you would pay for the next property. Do what makes you guys happy and comfortable!

William Craft · Answer

@John Thredford would love your opinion on this!