Is there any shame in paying rent as a REI?

Rental Property Investor · Salem, NH · Member since 2016 · 460 posts · 276 votes

I am currently house hacking a 4-unit but I plan on moving out and renting out my apartment to maximize cash flow. For some reason it feels wrong to pay rent in my next move but it is what makes sense for me going forward with my job close to the city.

My next investments will likely require professional management as the location is 2+ hours away so my thoughts are to pay rent where I want to live (close to the city) and also to have my investments within driving range but with a PM.

Do other investors pay rent?

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Logan AllecBusiness Member

Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes

It's all about the numbers. Forget about "shame," which is inherently subjective. Be shameless if the numbers work.

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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
8y
Of course there's no shame in it. I too had a 4-unit house hack that I lived in for a year (FHA rules) then rented for a few months before moving into what is now our primary residence.
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James Thomas NakashianPro Member
Massapequa, NY · Member since 2017 · 90 posts · 42 votes
8y
@Steve DellaPelle I don't know if there is shame in it because it depends on your situation. But I can say for sure I would never do that.
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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
8y
It's all about the numbers. Forget about "shame," which is inherently subjective. Be shameless if the numbers work.
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Von S.
Boston, MA · Member since 2013 · 53 posts · 31 votes
8y
I pay rent in the city while owning properties that I rent outside the city. The math to buying in the city is harder, who is getting 2% cap on deals in the city? If it's cheaper to rent than to pay a mortgage in the city, I don't see the shame-- isn't this a smarter choice, especially if you are getting better returns on suburbs rentals? For me, the real shame would be buying in the city and having to pay mortgage while getting little cash flow in return.
3 Reply
Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
8y
Steve, I have no idea about your situation but why not buy in the city and rent out or Airbnb rooms? This could be a win-win.
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Steve DellaPelle
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Rental Property Investor · Salem, NH · Member since 2016 · 460 posts · 276 votes
8y
@Logan Allec Like @Von S. mentioned...it is very difficult to get into the city of Boston with a worth-while return. My cash-on-hand is not enough to for a down payment even though it is one my big time goals to own in Boston.
I do like the idea of living in the city and having my investments elsewhere.
1 Reply
Ernesto Hernandez
Realtor · San Francisco, CA · Member since 2017 · 408 posts · 361 votes
8y
Grant Cardone believes you should never buy a primary residence according to his latest podcast, if I remember correctly. He's a huge advocate of staying flexible, open to relocating to emerging markets, and maximizing your cash.
20% down in the bay area is a minimum of 100k, in questionable neighborhoods now. So really closer to 150k. Not everyone would want to tie up that much cash on one property.
All depends on your personal goals.
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James Thomas NakashianPro Member
Massapequa, NY · Member since 2017 · 90 posts · 42 votes
8y
@Steve DellaPelle @Logan Allec makes a great point in his last comment.
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Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
8y
If your goal is owning in the city some day it probably makes more sense to do it sooner rather than later because it will only get harder as time goes by and prices rise. You can enjoy very healthy returns with short-term rentals in desirable areas in large cities on properties you couldn't cash flow otherwise. I see it all the time with my clients in LA. Unless there is severe regulation I can't imagine it'd be different in Boston. Just my two cents.
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Von S.
Boston, MA · Member since 2013 · 53 posts · 31 votes
8y
@Logan Allec, airbnb is a good idea but you're unfortunately right with the severe regulations
@Steve DellaPelle like logan mentioned, airbnbing a city purchase is a good idea. However, HOA is getting strict on airbnb so you would need to check the rules before purchasing. On top of that, HOA can change their rules in the future as well, leaving you with just a home, not investment. I'm unfortunately talking from experience on a rental I was in-- owner was threatened with fines. Since then, I've been scanning listings just in case-- some listings cheaper than 500k in Boston proper will even have a note that airbnb is not allowed. Surrounding town condos (Somerville, Brighton, Cambridge) might be more feasible with airbnbs in that they are less severe but it's harder to fill up bookings for winter. Talking from experience again! :(
0 Reply
Jered Souder
Accountant · Eugene, OR · Member since 2016 · 35 posts · 52 votes
8y
The way I see it is there is an amount of monthly cost to maintain a life style you want. Whether you are paying it in rent or Interest, taxes and insurance doesn't really matter (Even if you own a home free and clear you are paying the opportunity cost of your equity as interest. You could have that capital doing something else for you). I think owning real estate is very important to protect against inflation of rents. But you can protect yourself without living in the real estate you own. I think there is a good chance that I rent in the future even as I acquire more real estate.
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Account Closed
Real Estate Investor · Brooklyn, NY · Member since 2015 · 8 posts · 1 vote
8y
If renting fits your situation best then do it. However, if you have an opportunity to house hack again, and all of the dots connect then, house hack. I rent a place and own rental property because in NYC market is way too expensive it doesn't make sense, and I am in a position where I am lucky enough to have a rent stabilized unit and rent a 2 bed for 120% below market rates. I will never give up my NYC apt.
1 Reply
Logan AllecBusiness Member
Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
8y
Obviously you wouldn't invest in a property to Airbnb it when there's an HOA involved. I would never even buy a property for a normal lease if it was governed by an HOA.
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Derrick E.
Investor · The Creek, WV · Member since 2014 · 890 posts · 1k+ votes
8y
I am about to buy my 6th house and this is the first one that is my primary residence. I have been renting about 30 minutes outside of the city where it is cheaper. I have been buying some cheaper homes inside the city that I can rent out for a good price. It's been working out good for me so far. Don't let your land lord know you are a land lord though.
1 Reply
Ray Harrell
Investor · Chicago, IL · Member since 2016 · 1k+ posts · 930 votes
8y
Never be ashamed of anything. I own a 3 unit property in the south side of Chicago where I intended to live, but soon after purchase, I realized my safety would be in jeopardy if I lived there. So I continue to rent on the North side in my brand new gut rehab condo.
This Spring I would like to find a happy medium and purchase a 2 or 3 unit that has been rehabbed and live in one unit and let the other(s) pay my mortgage. But to find a building rehabbed and appointed like my current rental in as good a neighorhood will cost me $600K or so for two units. Makes no sense!
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
Owning a personal home is a money pit. During the life time of ownership it will cost as much or more than it will ever be worth inmost markets.
Renting is the most economical accommodation and will allow you maximum savings that would other wise be gobbled up by a personal home. A personal home is nothing more than a life style choice. It amounts to forced savings for those lacking the personal financial skills or discipline to save on their own.
No sin in renting, it's the fastest path to investment savings.
3 Reply
Mark H.
Investor · Grapevine, TX · Member since 2014 · 88 posts · 75 votes
8y
I own eight SFR rentals in very nice subdivisions, but I live in a small apartment! I'm a landlord and a renter. Very proud of expanding my income-producing portfolio and downsizing my personal living expenses. Popular thinking? no, but wealth-building? Yes.
0 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Nope no shame. I own rentals and rent. I plan to rent for several more years at least. I’ve lived in 3 states this year alone. Good luck doing that while owning a house. I enjoy the flexibility and I don’t really need the extra space right now. Plus by end of 2018 my cash flow from my REI will cover my rent.
1 Reply
Michael Boyer
Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
8y
At first, it seems counter intuitive to be a landlord and also a tenant.
It felt odd to me (disclosure: I own a home).
BUT there are some solid reasons (as mentioned by others).
One of the best rationales I have seen--I think it was from author/educator Jay P. Decima--for being a renter and into REI:
It lets you be all in.... 100% in terms of both time and money committed to real estate investing.
For example, a no hassle, low cost apartment won't soak up much of your capital (which you need for the next buy and hold rental or flip).
And--just as crucial--it won't burn up much of your valuable time (with home improvement projects, a lawn to mow, leaves to rake, a porch to paint, flooring to replace, etc).
So you can put the extra money and weekends into buying and improving investments properties-- not on a long to-do list for your own place.
Best of luck!
1 Reply
Dan Wickland
Rental Property Investor · wyoming · Member since 2017 · 76 posts · 73 votes
8y
No!
0 Reply
Edwin Ballard Jr
Realtor · Atlanta, GA · Member since 2016 · 40 posts · 15 votes
8y
@Steve DellaPelle Here's a video I believe to be relevant to your thoughts.
0 Reply
Frank Chin
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
8y
I attended classes in Real Estate at NYU, had an professor who actually invests in real estate, that's commercial real estate, shopping malls, office buildings. Then somewhere along the line, there were murmurs in the class that this guy is a fake, why would someone who made millions in real estate waste his time one night a week teaching class. As the old saying goes, "those who teaches can't .."
Then I remember there was a plaque in the building somewhere listing about a dozen people who were in the "one million dollar club", those who contributed at least a million to start the school. I took another look at the plaque and the professors name is on it, near the top, as it was in the order of the amount contributed.
I mentioned it to one of the doubters who started the rumors, and needless to say, he was shocked. So he asked the professor at the next class where does he live, and is in a mansion somewhere. To his further shock, the professor says he rents. Not only that, it's a rent controlled unit in midtown Manhattan, NYC.
After the shock of hearing it, we all wanted to know "why ????" His answer "I go through life looking for deals, and rent controlled units if you're a tenant is a great deal, the best there is", So why is he wasting his time teaching real estate? The answer "real estate is his passion, and doing what you enjoy is not a waste of time".
He says "many people can't understand it unless you have a lot of money and decide what you want to do in life". I listened, knew about his name on the plaque, but never once during the semester did he mention about his contribution in starting the school or boast about it. The school did make one concession, his popular class is held once a year, and it's standing room only. And NYU is a real and reputable school, not like Trump University.
5 Reply
Ramsey Blankenship
Rental Property Investor · San Diego, CA · Member since 2016 · 119 posts · 129 votes
8y
I live in San Diego, Ca. which is one of the few markets it is cheaper to rent than to own. If you can save $500 p/month by renting, and repairs/maintenance/management is handled by your landlord - you can stack up some great cash for investing in markets that will produce an actual cashflow. Cashflow is king when you are getting started as most young investors can not afford to let their money sit stagnant for prolonged periods of time.
0 Reply
Account Closed
Rental Property Investor · Torrance, CA · Member since 2016 · 724 posts · 1k+ votes
8y
Depends where you live. In my city a 3 bedroom ranch is in the $800,000 range. The same house rents for far less than the mortgage would be. The down payment of $160,000 would be put to better use buying more rentals. I rent here and let my tenants build my equity. I think it comes down to whatever situation allows you to save the most money. If I lived in a market where mortgages were less than rent I'd probably buy. I don't see a home as an investment, it's just a necessary monthly expense like a car. For most Americans that aren't building equity in rental properties it's more important to buy a home. They're gonna need a paid off place to live when they're trying to live off social security and a 401K. But for us we're better off using our capital more effectively.
1 Reply
Erik W.
Real Estate Investor · Springfield, MO · Member since 2017 · 1k+ posts · 2k+ votes
8y
Is there any shame in a grocery store owner buying groceries? Heck no. Do what needs to be done as long as it fits in your plan. I have found several scenarios where renting makes a ton of sense. Short-term (less than 2 years in a home) especially.
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