Shall I invest or shall I buy a primary residence

20 Replies

Hi,

I am a single engineer in my early 30s. I was able to save 200K but the maximum home I can purchase in bay area, California is 1.4 million. I cannot afford any single family home in mountain view, and I don't like to live more than a half hour drive away from my house. I am happy renting an apartment for $3000 now, with around 10 minutes bike ride to work.

My question is: would you recommend me to:

1. buy a single family home in South San Jose, drive an hour to work every day. I will hate my life but the home appreciation is fast.

2. Invest in multiple houses in Raleigh, Austin?

I have a colleague who bought 3 new homes in Austin near the Tesla factor in Mar 2020. And her investment properties already appreciated 100K each house. I am thinking of buying homes as well, but not sure if the market is too high now.

Any advice will be appreciated! 

Find a place like Coffeyville Kansas.  You can buy a 3BR with c h/a for $10k.  There is a $325M facility being built here in spring 2022.

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Buy a 2-4 unit (or SFD and house hack) in a quality area, within driving distance to you job. Utilize the benefit of a conventional owner occupied home loan, and place the lowest down payment available to you without PMI. You will be living here and utilizing the advantage of your high appreciation market, compounded with quality leverage from an owner occupied loan. You DONT need to stay here forever and "Hate Life", as you can move out and recreate shortly after. As a matter of fact that drive time may encourage you continue your growth a rapid pace!

Not sure if this is in the right forum unless you're option 2 is related to STRs? Looks at your CoC returns for the 200k in different areas. Austin and Raleigh I haven't seen on many STR discussions but they could be. Seems like you don't have enough for 20% down and just running some basic calcs your PITI to own in San Jose is going to be around $6500/mo vs $3000/mo to rent.

I'd personally keep renting (and am renting now), and invest that money to cashflow which will cover your rent and free up more of your income to invest.

Originally posted by @Justin R.:

Buy a 2-4 unit (or SFD and house hack) in a quality area, within driving distance to you job. Utilize the benefit of a conventional owner occupied home loan, and place the lowest down payment available to you without PMI. You will be living here and utilizing the advantage of your high appreciation market, compounded with quality leverage from an owner occupied loan. You DONT need to stay here forever and "Hate Life", as you can move out and recreate shortly after. As a matter of fact that drive time may encourage you continue your growth a rapid pace!

As a real estate broker, I would take the money to a different market. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country. There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.

A very good source of local analysis is rereport.com

Originally posted by @Jeff Gold:

@Paul Sandhu according to reports it will only bring in 50 full time jobs. What are you seeing on your end that makes you believe it will increase need for str or ltr?  
Appreciate your insights! 

I don't rent to local people.  Just traveling workers with a per diem. Construction will take 2 years.

I'm in San Jose and I rent a 4 bd for $3450 and invest in RE elsewhere, but part of my master plan is to retire in 2027 and get the heck out of here and travel the world a bit. You can also invest outside the US. I don't like US RE because it is too expensive to buy and maintain. Mexico property tax is .1% - my last year's property tax with early pay discount was $74. When I had a house in Tracy, I was paying $4000 per year. In San Jose you will be paying over $10K per year.

I agree with @Collin Chan about Raleigh, NC and STR's. If that's your consideration @Jay Wang, do some research on this area. As of February, 2021 Raleigh imposed new regulations on STR’s, making permits mandatory for operators. Not a big deal in the grand scheme but prior regulations has made this a market in flux and something to consider. Best of luck! 

Hey @Jay Wang!

I'd suggest hitting up the David Greene team and having their house hacking specialist find you a creative solution to house hacking in the bay area! If you need a referral to someone in that shop, I'm happy to help. 

Another option is to invest in the triangle area (Raleigh-Durham-Chapel Hill) with a strategic mindset. While Raleigh is strict with their STR laws, Durham is more open to the strategy. Durham is the undervalued market in the triangle - average price is 400k, below the national average (443k), almost 50k under the City of Raleigh average (448k) but still has great proximity to RTP. Current estimates has the Triangle market growing another 8-10% in 2022 alone after almost 20% growth in 2021.

Hope this helps!

Don't hate your life haha. You only get one. Invest where the numbers and regulations make sense. 

@Justin R. This is the best of both worlds. Great answer and I would like to emphasize. If you purchase a duplex with an owner occupied loan this isn’t your forever home. On par of most owner occupied loans you only have to stay there for a year. Move out, cash flow, hopefully experience that appreciation you mentioned.

@Jay Wang house hack! Buy a 3 or 4 family. Live in 1 unit rent out the others..

Then buy your primary home and rent out the unit you’re living in :))))

My vote is #2,  but don't limit yourself to that area! There are so many cities with potential where you can find great properties that cash flow and will appreciate. Happy Hunting.

@Jay Wang we currently live in So-Cal. Where we live the median price for a house is $900k+. We were priced out of the market years ago. So, we are renting for $2500/month and buying investment real estate instead to increase our income. At some point we will buy local and house hack. Research house hacking. This is where you live in a property & rent it out to tenants to lower your cost of living (a house or small multi). It’s worth looking into both options. Good luck!

Piggybacking off of @Justin R. , and I would vet this with a CPA before you start your strategy, but I believe that when you have a duplex or multifamily that is your primary residence as well, you can split the equity by the portion that you use as a primary residence and the part you use as "investment" property. 

What that means for someone like you in an appreciating area, is that you can kind of grow your primary residence bucket and your investment equity at the same time. The primary residence portion (provided you live there for 2/5 years) will be tax exempt up to $250k of profit. However, the investment portion, while taxable, can be 1031 exchanged for another investment property. 

Not saying that this is the ideal way to go or the way that the numbers over time will work out the best, but you will be able to use really good leverage in a highly appreciating area which is always a plus, and you can potentially pivot to your own SFR and some income properties.