(Advice) Focusing on one thing

11 Replies

Good Morning BP! I’ve been stuck in the same place for a long time, and I could really use your advice.

I live in Duluth, MN. I am a full-time single father who dreams about invest in real estate. My long term goal is to build my own vacation rentals. I’ve been back and forth whether I should flip first, house hack, invest in long term rentals, or get right into vacation rentals.

I would love to dive right into vacation rentals. It excites me more than any other form of REI. I only have about $10k saved currently. I'm living with a friend now and I've been looking for a duplex to house hack for the last 4 months or so, without any luck. I could really use the income to offset my mortgage. But if I use my money for a down payment, then how do I continue to invest? I've been looking for a property with enough value add to refinance some cash out, but not having any luck. My other thought is that if I rent somewhere for now, and then use that money as "skin in the game" for the hard money lender I'm preapproved with, to flip a property, I'll have more cash to invest in either a duplex or vacation rental. Wish I could figure it out and be able to just focus on one thing.

Any advice would be greatly appreciated. Thank you BP

Hi @Matthew Ward ,

I can definitely relate to your situation. My husband and I have had dreams of investing in real estate for some time now (either a rental or a flip) but we have not been in a financial position to do so; at least not from a risk perspective. We are actively paying off debt and hope to acquire property within the next couple of years. I will add that the current market in Duluth is making it quite tough to get a good deal :)

I don't know if it helps with your decision making, but Duluth recently failed to pass the proposed bill to allow for additional long term rental (AirBNB, VRBO, etc) licenses. The 60 or so licenses that are actively assigned do not transfer to new owners, so it looks like this investment strategy may not be feasible in the short term, unless you plan to rent out a portion of the home you will occupy. My understanding is that it is not difficult to obtain the home share permit, and that these are quite lucrative for certain homeowners, but the vacation dwelling unit licenses appear to be moving towards a decline. We have friends that have the home share permit and make $65 a night renting a room out in their house. We were just talking about it last week and they have a booked guest (or guests) almost every night of the week. 

If you want to connect further about the home share permits, other types of licensing and/or other local investing ideas, feel free to DM me. I feel strongly that investing in SFR in our area is a good long term strategy!

@Matthew Ward , wouldn't it bug you that while you're "building your own vacation rentals", you'd be paying rent and construction loan/s (that is, if you could even get sensible loan approvals)? Your talk of using a hard money lender for interim flipping smacks to me more of impatience rather than a carefully crafted plan of action. eg. If the numbers would suit doing a flip, why wouldn't they suit being a buy-to-hold, value-addable primary instead?

Your situation strikes me as one where you'd be well served with a low deposit owner-occupier (eg. FHA-approved) loan. As well as for an SFR, you can apply for one of those loans by buying a duplex, triplex or even a quadplex as your primary (to help with expenses)! Do you agree?...

@Brittany Kuschel thank you for your reply! I am aware of the restrictions on Duluth vacation rentals, such a shame.. My idea would be to have vacation rentals along the north shore (outside of Duluth). What are your thoughts on this? I have thought of renting out an extra room through Airbnb, etc., but I’m just not sure if it makes sense with a toddler running around.. but I could wrong.

@Brent 

@Brent Coombs Thank you for thoughts. My long term goal would be to pay cash for the land and build. They would be small, unique, cabin style vacation rentals. Maybe that’s not leveraging, but I’m more excited about having the passive income, and building a cool, unique vacation rental. Thoughts?

As for using the hard money lender to flip, it certainly is out of desperation, more so then a carefully crafted plan. I’ve been dreaming about getting started for almost 5 years now, with little progress, other than education. Thanks again for your advice!

Originally posted by @Matthew Ward :

@Brent 

@Brent Coombs Thank you for thoughts. My long term goal would be to pay cash for the land and build. They would be small, unique, cabin style vacation rentals. Maybe that’s not leveraging, but I’m more excited about having the passive income, and building a cool, unique vacation rental. Thoughts?

As for using the hard money lender to flip, it certainly is out of desperation, more so then a carefully crafted plan. I’ve been dreaming about getting started for almost 5 years now, with little progress, other than education. Thanks again for your advice!

Good to have a "long term goal". And yes, borrowing for construction is leveraging. 

But, we have to live now too, right? What's realistic/practical for now? I've given my suggestion...

Hey Matt, I've looked into some of the ideas you are mentioning here. As you go up the shore you will run into some regulations that Lake County has in place as well. Deals on either land or properties that would make a profitable vacation rental are hard to come by. I have not actually spoken with anybody in Lake County but you can find information at their county website: http://www.co.lake.mn.us/departments/planning_and_...

Just another thing to keep in mind. 

House hack. I don't see vacation rentals being a good idea for a beginner (I am one too). Regulation coming more and more. Too much turnover etc. New construction for a beginner, not me haha. Flips for a beginner, not for me either. Buy and hold makes the most sense in my opinion for someone just starting out.

@Matthew Ward I have heard a few success stories of vacation rental owners up the shore just north of Duluth but it's my understanding that the township is looking to regulate as it is relatively saturated. In regards to renting a bedroom, I can relate to your situation as I also have a toddler at home. Personally, I don't think the risk is worth the reward, but it depends more on the layout of the house, how well sound travels, your personal situation, etc. 

As @Brent Coombs stated earlier, it sounds like an owner-occupied FHA loan may be a good option based on your situation. I used the same house-hacking strategy for my first property in West Duluth and was able to preserve capital with the FHA option. The beauty of long-term cash flow is a reduction in volatility. In a way it hedges your portfolio against riskier options such as flipping, new construction, etc.

The margins can be much higher in vacation rentals, but new construction will heavily increase initial capital requirements and interest rates, especially if you use hard money. They also require daily/weekly cleaning and maintenance which could prove difficult with a full-time job and a toddler. House-hacking would ease debt responsibilities, build equity, and allow you to save for future ventures. 

Although Duluth's market is tough as of late, the summer months always increase the amount of properties available. The right deal will come. Just make sure you have your financing in order so you can act quickly!

@Matthew Ward , I currently do vacation rentals and I agree with a lot of people here, go for the house hacking route first.

STR (Short Term Rentals) are great, but in my experience, you want to get one which the city has already passed legislation on and is open to them. It can be a real ringer to start investing and have the city you are investing in kill your plans.

Personally, I would have house hacked my first house looking backwards. It's a great way to get into the game if you buy right. 

This reply is long overdue, but I want to thank everyone that responded for their advice. And I took it.

This summer, in July, I closed on my first duplex of which I have been house hacking. I live in the upper unit and my tenants are wonderful and are currently paying for my mortgage.. or my daycare expenses, both just about the same. The duplex needs some upgrading inside and new siding and windows, but I'm not sure it makes sense to do those repairs right away because even though it adds value it likely not leave me much to pull from after the 20% that needs to remain for a HELOC.

My new goal before I get into vacation rentals is to flip a couple properties using my contractors license, to acquire some cash so I can build my own house and eventually start acquiring vacation rentals.

Thanks again everyone!

@Matthew Ward it sounds like you make progress. Do what makes sense even it is Not vacation rentals. It’s good to have an eye on what you love, but getting ahead can be lovely.