What to buy first 2-4 Unit or Mulit-Family?

Question

I'm wondering which makes most sense.  I can buy a 2-4 unit for myself to live in one unit and rent out the rest in San Diego County.  OR. I can go to another part of the country and use the same amount of money and buy at least one apartment building that cash flows.  How do I decide which is the best option?  I do not own my own home.  My thought is, yes... If I buy the 2-4 unit, I'll own my own home.  BUT if I bought an apartment building, I could buy the 2-4 unit as my primary residence a few months and have revenue from both.    What are your thoughts?  I'm asking because. I tend to think far out (What box?) and sometimes I'm not the most practical person in my methodology.  I find that the wisdom of other's experiences help me to see more clearly.

JD Martin · Answer

Favorable loan terms, low barrier to entry, localized management, experience learning landlording, tax benefits.

Dan H. · Answer

I recommend everyone start local self managed for the learning opportunities, leverage existing location knowledge, and capability to more easily manage any issues that arise.  In addition OOS involves building a trusted team, acquiring a market knowledge and simply has addition risk when compared to local investing.

I am also an advocate of housing hacking detached duplex to quad for the lower entry cost, better loan rates, and learning opportunity.

Good luck

Kevin Fox · Answer

Hey @Dawn Oree

As most others have said, the 2 to 4 unit is the way you’ll want to go here.

@Jd Martin nailed it on the head with the key benefits he listed.

Having said that, please Feel free to reach out if you would like any assistance with that 2-4 Unit property search in San Diego or have any additional questions on the matter.

I am always happy to help!

Kevin

JD Martin · Answer

If I was just starting out, given those two options, I would buy a triplex/quad plex, get an FHA or VA loan, live in one and rent the other 3 out.

Dorothy Butala · Answer

Hi Dawn, there are some more questions that need to be answered.  If you were to buy in another part of the country, have you picked out markets that you are interested in and have an idea of how you would manage the property from afar?  Couldn't you buy the 2-4 unit as your primary residence and then by the apartment complex?  How are you funding the deal if you were to purchase a complex and/or property for your primary residence?  My school of thought is to get your feet wet in the business by owning something closer that you can have a bit of hands on management to start, that way when you are ready to expand, you know what questions to ask of those who may do management for you when you look in areas where you won't be managing the assets day to day.  I am sure there are plenty of people who are intermediate or even seasoned investors who have been burned by not having the right management in place, so you want to make sure you have at least a basic knowledge of what needs to happen to make your property run successfully.  I do see that you are in San Diego and the price points there are less attractive than other markets, but you just have to decide to balance the ability to learn by doing self management for some time, or learn as much as you can about off-site management before taking the plunge into another market.

Account Closed · Answer

i say buy the apartment building if it cash flows pretty well.  do what you're doing now as far as where you're living and then buy the multi family

Ali Boone · Answer

Well you're really asking two different questions, kind of. Or at least splitting them into two separate questions may help you think about more things that might help you make a decision. The two questions I see are:

Buy a residential property or a commercial property?

You're not totally asking this one, just because the residential wouldn't be just straight investment properties (you'd be living there), but similar question at least and maybe some of the points pertain. Try this-

https://www.biggerpockets.com/renewsblog/5-SFRs-or...

Then there's always the part about buying your own house vs. buying a straight investment (this info would pertain more just as you weigh out all of the numbers on each deal)-

https://www.biggerpockets.com/renewsblog/2014/01/1...

Buy local or afar?

Then, do you stick to SD or buy elsewhere.

https://www.biggerpockets.com/renewsblog/2015/11/1...

Sorry to article-bombard, especially since none of them hit your situation specifically, but I feel like combining ideas from all of them will lend their hand to making a decision.

Hope that helps!

What to buy first 2-4 Unit or Mulit-Family?

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