Better to buy one local property or multiple OOS properties?

Question

Hey all! I live in an expensive market (Denver) and am toggling between buying one expensive property locally vs. buying multiple cheaper properties out-of-state.

By buying locally, I can take advantage of all the house hacking / primary residence benefits (low down payment, lower interest, etc.) as well as not needing to hire out property management. By buying OOS, I could purchase multiple properties with 20% down and avoid paying PMI every month.

Which would you choose? My partner and I are on opposite sides of the fence!

Kayla Givens · Answer

Hey, @Kaylee Walterbach! Great question - do you own any properties yet? If not, I would highly recommend buying locally first, as you can take advantage of house hacking (all the advantages you mentioned) and get some experience with property management if you choose to self-manage. Yes, Denver is an expensive market but property prices will continue to rise, and it's better to get your foot in the door NOW. You might be able to acquire more properties out of state but what will the difference in cash flow look like once you get property management in place?

Either option will be great to get your foot in the door with investing :)

Sabrina Sanchez · Answer

Hi Kaylee Walterbach,

I would first buy locally, with a low downpayment loan and house hack to get rid of what I assume is your biggest bill (rent). Of course the numbers have to make sense but from there take the time to learn other markets and then consider a market OOS. You will learn a lot from your first househack and that knowledge you can use in the future and you'll be more equipped to handle something from a distance.

Bonnie Griffin Kaake · Answer

@Kaylee Walterbach I agree with the comments of others. Keep that Denver property and put it up for rent. Then, be sure to get a cost segregation study estimate. The study will be based upon your original purchase price plus any improvements you made getting it ready to rent. While you are planning on renting your current house, look for one you want next. The market has slowed but houses are still selling.

If you find Denver Metro is too high for you, don't despair. Greeley, Colorado Springs, and even Grand Junction are more reasonable.

Drew Sygit · Answer

@Kaylee Walterbach getting DIY management experience will also help you avoid being taken advantage by any PMC you hire in the future.

Kaylee Walterbach · Answer

Hey @Kayla Govier, thanks for the quick reply. We're in a primary residence now that is in a GREAT spot to be turned into a rental. (Thank you, all-time-low interest rates!) I guess that would be an added benefit of staying locally—we could move into a new primary res/house hack situation and also rent out our current property (again, without management fees).

That's a good point about gaining experience with self-management, too—especially if we go right into managing two properties!

David Mackin · Answer

@Kaylee Walterbach I think we're agreeing on the 75% rental income toward DTI. Perhaps I needed to word that better! You keep it, rent it out (which means you have a signed lease) and you can use it right away toward DTI. I put the signed lease part forward as underwriters need that to approve the income. As far as finding cash flowing deals, that is certainly tricky in Denver at the moment. I think that agents like @Kayla Govier above are in the veins of the market and would know better where to find deals. The market being tricky is another reason that I think house-hacking might be a more viable option. Buying a property as your primary is certainly more favorable when it comes to rates.

David Mackin · Answer

@Kaylee Walterbach If you stay local and keep the property you already have, you can qualify 75% of the rental income as long as you have a signed 1 year lease. (This gets trickier with STR as you need to show income AFTER renting it out). This will help with DTI ratios and-depending on your rental market-may even provide additional income when qualifying for a new primary residential loan.

Having two properties in Colorado is a great position to be in (in my opinion).

You also make a good point on OOS and 20% down avoiding PMI, but if you crunch the numbers and can still cash-flow on a lower down payment loan locally, great!

Cost is Cost. If you cash-flow now and can get rid of PMI in the future, that’s more money! Not to mention the possibility of refinance.

Everyone has different methods but I think what works best for YOU is always the way to go. It’s all about finding deals that provide cash-flow.

Hope this helped!

Jay Hinrichs · Answer

in my mind put a roof over your head first and foremost .. then invest.

Eliott Elias · Answer

Buy multiple and create wealth!!

Better to buy one local property or multiple OOS properties?

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