Next Investment: A Primary Residence or Long Term Rental?
Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes
Next Investment: A Primary Residence or Long Term Rental?
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Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
3yI would be looking at this more from a personal/lifestyle perspective than I would from an investment perspective. If you plan to grow your family in the next year, and you know you'll need the space, then I would be looking to upgrade my living situation sooner rather than later.
If you start looking now then you will have plenty of time to find "the one", and to renovate it before the baby comes. If you wait until you need the space (e.g., you get pregnant) then you're going to be rushed and feel pressured to overpay.
I don't have a full financial picture of your situation or these properties, but it sounds like Option A is the way to go. Buy it under market, put in the sweat equity over the next year to make it "yours", and enjoy the space as you grow your family.
Good luck!
18 Replies
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3yI would likely buy the fixer and move in to fix it up. I'd turn the place you are in into a rental, if it cash flows.
Quote from @Katie Case:
Hi all! My name is Katie and I am a fairly new investor. My husband and I purchased our first house hack, a duplex, in Coraopolis. We live here currently. We are coming up on a year of owning the property (purchased with an FHA loan), and we will have around $25-$30K saved up in the next month or two to purchase our next one. We are trying to decide what to do next and would love advice from more seasoned investors.
A.) Do we buy a small starter home in Sewickley that we can rehab and add value to? We currently have our eyes on a property that we'd hope to get for around $200K (4 BD, 1 BA with room for a second) and hasn't been updated in a long time. This is an expensive market, and a desirable one, so it is rare to find a property at this price.
B.) Do we buy another small multifamily rental and stay in our house hack for another year? It is worth mentioning we do not currently have kids, but plan to start a family sometime in the next year. Our unit is 1 BD 1 BA so we will likely (hopefully) need more space by Spring/Summer 2024.
I know there is probably no one right answer here, but would love to know what others would do in our situation. Thank you!
I know some place on the east coast like Maryland have a punitive tax when you you sell plus huge property taxes. I don't know if PA is the same. The overall numbers have to work out. - Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes3y
What would be the long term goal with option A? Rehab while living in it and rent it out after a year or more of a live in flip to sell in a couple of years?
Option B is going to come with a higher down payment as an investment loan.
Adding extra doors is always good, but if the single family is a rare and great deal you'll be able to force equity there.
- Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @Ash Hegde:
What would be the long term goal with option A? Rehab while living in it and rent it out after a year or more of a live in flip to sell in a couple of years?
Option B is going to come with a higher down payment as an investment loan.
Adding extra doors is always good, but if the single family is a rare and great deal you'll be able to force equity there.
Thanks, Ash! Yes, the goal of Option A would be more of a live in flip that we would sell after a few years.
- Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes3y
I would be looking at this more from a personal/lifestyle perspective than I would from an investment perspective. If you plan to grow your family in the next year, and you know you'll need the space, then I would be looking to upgrade my living situation sooner rather than later.
If you start looking now then you will have plenty of time to find "the one", and to renovate it before the baby comes. If you wait until you need the space (e.g., you get pregnant) then you're going to be rushed and feel pressured to overpay.
I don't have a full financial picture of your situation or these properties, but it sounds like Option A is the way to go. Buy it under market, put in the sweat equity over the next year to make it "yours", and enjoy the space as you grow your family.
Good luck!
- Real Estate Agent · Outer Banks, NC · Member since 2019 · 168 posts · 116 votes3y
Hard decision! I would say with the single family home, it sounds like you can force more equity there, and I am also assuming that the multi family is more one bed one bath units? If that is the case, going for the single family you are really winning financially and personally. You can rehab and fix it up and then start your family there because you have the room. Then when you are ready, you buy another place and either sell the single family or turn it into a rental and have the memories of where you started your family. It could become your 'kids house' in the sense that in 18 - 20 years, and it is almost paid off or fully paid off, and you have money for whatever their future endeavours are. All in all, it sounds like the single family would tick off multiple boxes for you and your current situation!
- 3yJeremy TaggartBusiness MemberReal Estate Agent · Pittsburgh, PA · Member since 2014 · 850 posts · 646 votes
@Katie Case I'm biased towards 2-4 unit house hacking (I've done 6 lol) but live in flip is a good strategy as well. I always picked the 2-4's since a goal of mine was to build a big rental portfolio and that was the easiest/cheapest way to do that. Also didn't want to pay my own mortgage haha. Wanted to take advantage of those before having kids.
My GF and I will likely go the live in flip route for the next one since kids will likely be in the picture for us as well soon. You would just have to be more picky with the 2-4 unit with kids probably since area/type of building would play a bigger role than pre kids. I'd say really it depends on your long term goals. If you want to own a large portfolio maybe do another 2-4 unit house hack but if you just want a small portfolio you could do the live in flip if there's money to be made. Also we do have lenders here in Pittsburgh that do 5-10% down on owner occupied 2-4 units outside of the FHA loan as far as house hacking options once you've used your FHA up.
DHRE- The Jeremy Taggart Team590 Reviews - Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @Joe Norman:
I would be looking at this more from a personal/lifestyle perspective than I would from an investment perspective. If you plan to grow your family in the next year, and you know you'll need the space, then I would be looking to upgrade my living situation sooner rather than later.
If you start looking now then you will have plenty of time to find "the one", and to renovate it before the baby comes. If you wait until you need the space (e.g., you get pregnant) then you're going to be rushed and feel pressured to overpay.
I don't have a full financial picture of your situation or these properties, but it sounds like Option A is the way to go. Buy it under market, put in the sweat equity over the next year to make it "yours", and enjoy the space as you grow your family.
Good luck!
Thank you for the feedback, I appreciate it!!
- Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @John Mausteller:
Hard decision! I would say with the single family home, it sounds like you can force more equity there, and I am also assuming that the multi family is more one bed one bath units? If that is the case, going for the single family you are really winning financially and personally. You can rehab and fix it up and then start your family there because you have the room. Then when you are ready, you buy another place and either sell the single family or turn it into a rental and have the memories of where you started your family. It could become your 'kids house' in the sense that in 18 - 20 years, and it is almost paid off or fully paid off, and you have money for whatever their future endeavours are. All in all, it sounds like the single family would tick off multiple boxes for you and your current situation!
Thanks, John!
- Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @Jeremy Taggart:
@Katie Case I'm biased towards 2-4 unit house hacking (I've done 6 lol) but live in flip is a good strategy as well. I always picked the 2-4's since a goal of mine was to build a big rental portfolio and that was the easiest/cheapest way to do that. Also didn't want to pay my own mortgage haha. Wanted to take advantage of those before having kids.
My GF and I will likely go the live in flip route for the next one since kids will likely be in the picture for us as well soon. You would just have to be more picky with the 2-4 unit with kids probably since area/type of building would play a bigger role than pre kids. I'd say really it depends on your long term goals. If you want to own a large portfolio maybe do another 2-4 unit house hack but if you just want a small portfolio you could do the live in flip if there's money to be made. Also we do have lenders here in Pittsburgh that do 5-10% down on owner occupied 2-4 units outside of the FHA loan as far as house hacking options once you've used your FHA up.Hi Jeremy, thank you for the feedback. I am certainly not against house hacking again, the unit we live in would just need enough space. I give you a lot of credit for moving that many times, not sure I could handle that many moves! I'd also love to know more about those lenders!
- 3yJeremy TaggartBusiness MemberReal Estate Agent · Pittsburgh, PA · Member since 2014 · 850 posts · 646 votes
@Katie Case haha definitely had to learn to live light! S&T Bank does the 5% down Denise Maltzman is who I have worked with there and Northwest Bank does the 10% down Tony Feola is my contact with them. I can't post contact info on the forums but if you can't find them online and wanted to reach out to them feel free to shoot me a DM. Can get 3% sellers assist with 5% down and 6% sellers assist with 10% down since they are conventional products.
DHRE- The Jeremy Taggart Team590 Reviews - 3yAaron RayPro MemberInvestor · Pittsburgh, PA · Member since 2017 · 33 posts · 21 votes
@Katie Case definitely house hack again! My wife and I are still house hacking here in Coraopolis with a 3 month old baby! We'll be on the lookout for the next house hack soon. Whatever you choose to do, you and Nathan need to stay close so I can have someone hold me accountable, I have not been consistent getting to CrossFit MindFire for awhile now!
On another note, if you're not already, I would strongly recommend working with @Jeremy Taggart and his team! I can also confirm his lenders above, I used Tony Feola for his 10% down on our current house hack.
- Member since 2021 · 104 posts · 78 votes3y
@Katie Case
One thing you guys will want to consider if you haven't already is how much you'll be able to borrow to buy that next property.
If you plan on hanging on to your existing place for example, that may lessen the amount that you can borrow for the next property because the mortgage on the existing place contributes to your monthly debt. The higher your debt, the less you can borrow with many loan types.
On the flip side to that, the rental income from the existing place may count as income for you, depending on how long you've been receiving it and various other factors the lender will look at.
There's a lot of factors to it, but the gist of what I'm getting at is maybe see first what types of loans/financing you can qualify for... then consider which properties may work best for you based off of that.
Draft up the types of properties that you're interested in, then have a chat with 5 or 6 lenders to see what your borrowing power is... and don't be shy about talking to them or feel like you're wasting their time... that's all part of their job. Good luck!
- Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @Martin M.:
@Katie Case
One thing you guys will want to consider if you haven't already is how much you'll be able to borrow to buy that next property.
If you plan on hanging on to your existing place for example, that may lessen the amount that you can borrow for the next property because the mortgage on the existing place contributes to your monthly debt. The higher your debt, the less you can borrow with many loan types.
On the flip side to that, the rental income from the existing place may count as income for you, depending on how long you've been receiving it and various other factors the lender will look at.
There's a lot of factors to it, but the gist of what I'm getting at is maybe see first what types of loans/financing you can qualify for... then consider which properties may work best for you based off of that.
Draft up the types of properties that you're interested in, then have a chat with 5 or 6 lenders to see what your borrowing power is... and don't be shy about talking to them or feel like you're wasting their time... that's all part of their job. Good luck!
That's a great idea! Thanks, Martin!
- Investor · Pittsburgh, PA · Member since 2021 · 8 posts · 2 votes3y
Quote from @Aaron Ray:
@Katie Case definitely house hack again! My wife and I are still house hacking here in Coraopolis with a 3 month old baby! We'll be on the lookout for the next house hack soon. Whatever you choose to do, you and Nathan need to stay close so I can have someone hold me accountable, I have not been consistent getting to CrossFit MindFire for awhile now!
On another note, if you're not already, I would strongly recommend working with @Jeremy Taggart and his team! I can also confirm his lenders above, I used Tony Feola for his 10% down on our current house hack.
Haha yes, we have missed you at MindFire! We plan to stay close so we can keep going there as well! I think the investor side of me wants to house hack while the practical side of me doesn't want to keep moving/deal with people living on top of me.
- 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
@Katie Case run the numbers and compare to your goals and priorities. Without knowing those it is very difficult to give you advice. But I think if you did those two things you would have your answer.
The Assumable Guy544 Reviews - Rental Property Investor · Pittsburgh, PA · Member since 2018 · 40 posts · 16 votes3y
@Katie Case I recommend not doing a live-in flip involving pregnancy or a new baby unless you can get the work done before you move in. I gutted our house in two phases; the first time while living in it. We moved out for the second phase while pregnant, and it was not ideal logistically or financially.
Also, don't know if you guys have access to more money, but renovating a 4 bd house in Sewickley will be expensive. You would be able to refinance or get a Heloc when it was finished, but your money may be tied up for a while. - Investor · Member since 2021 · 591 posts · 695 votes3y
@Katie Case as others mentioned, there's not enough info here to provide really specific feedback...so, I'd suggest doing two things:
1. create multiple financial models for each approach (including "worst case scenario" models that involve unanticipated capex, extended vacancy, etc., etc.).
2. Then, make a list of all the pros and cons of each approach.
Once you do those two things, you'll have a much better idea of which approach fits you best.
Things to consider when you make your list of pros/cons:
-How easy/difficult will the property be to manage? For instance, what's the tenant pool like for each property, and how easy will it be to find high quality tenants? (this obviously depends on things like the location, the grade of the neighborhood, the grade of the property, etc.).
-What would the rehab entail, and how much experience do you have to do that type of rehab? I've done live-in rehabs before, and (no surprise) living in a construction zone sucks! Would it be viable to do the rehab before move-in?
-Right now, it's relatively easy for you to move to a new property (since you don't have kids)...presumably, it will become much more difficult to move to a new property once you have a kid (so this might be one of the last opportunities you to move to a new property for a while).
-What effect does each approach have on your DTI and your ability to qualify for more loans in the future?
-What's the outlook for appreciation with each approach?
-What (if any) value add opportunities do the two approaches provide?
-What are the pros/cons of the various financial models you created for each approach?
-What exit strategies are available for each approach?
etc.
Good luck out there!
- 3yElise Bickel TauberBusiness MemberReal Estate Agent · Cranberry Twp · Member since 2017 · 384 posts · 198 votes
Hey Katie! Is there a reason you wouldn't want to just purchase a flip and turn it quickly? We have a great lender who will lend up to 90% of the purchase price and up to 110% of the rehab costs so you could get in, turn it, and get out while the market is hot this spring/summer and have even more cash to work with regardless if you go with another single family or multi unit.
I will also say I have a lot of investors I work with who are moving from house hack to house hack and it is really working well for them. I have a young couple who have gone from nothing to 12 units in 3 years.
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