Buy a House For myself or buy a Multifamily to rent

2 Replies

So I'm a little confused because I read that Grant Cardone said to not buy a house for yourself because it's a bad investment. But when I crunch the numbers I seem to be getting more "profit" by buying a house and no longer paying rent, rather than buying a multifamily in new Brunswick, NJ (college town) and renting it out. I also heard Dave Ramsey say that you should only buy houses in cash. I can afford the single family townhouse for myself in cash, but not the Multifamily in New brusnwick, that one will have to be mortgage.  

Here is a breakdown of my numbers. I need some help because I feel like I'm missing something. I also overestimated capital expenses for both, at least I think I did.

Current Rent: 1968/mo (we pay all utilities)

BUYING MY OWN HOUSE (In cash)

250,000 purchase in cash
Property taxes: 649
Hoa Fees : 262
Insurance: 79
Capital expenses: 300
Total: 1290/mo expenses
Savings on rent: 1968 - 1290:
Profit: 678/mo

BUYING A MULTIFAMILY (Mortgage)

500k Purchase price (will probably get it for 450k, but worse case)

If we put 250k down (same as above)
30 year mortgage
2524/ mo total expenses (Principal and Interest 1,187; Property Taxes 824; Homeowners' Insurance: 133 capital expenses: 380)
4200/mo in rent
1676/mo profit
Minus our rent of $1968: -292 profit
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After the multi family is fully paid off: 1354 total expenses
After expenses 2846 profit – 1968 = 878 profit

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So based on this isn't buying a home going to make me more money? At least until the multi-family is fully paid off. I'm not sure if I missed something or if I did it wrong. I would really appreciate it if someone can take a look and let me know if I messed something up or if there is something I am not considering. 

I totally disagree with Grant on this. Not being a renter is great. Now, don't buy something expensive and make yourself house poor. Just remember that Grant is selling a passive real estate investment, and he isn't exactly an objective financial professional.

Buying a personal residence all cash is rarely the optimal way to deploy capital. Mortgage debt is cheap, cheap, cheap, and you can find other places to put all of that cash which will make a much greater return for you. A $678/mo return on $250k invested is 1.2% annualized. That's..bad. You can make much greater cash on cash returns across your portfolio if you use debt and focus on maximizing cash flow.