Long term strategy: primary home & investment properties purchase

12 Replies

Hi BP members,

I am in a dilemma over our primary home purchase & a long term investment strategy.

My husband and I are in our early 30s, no kids (planning to have one soon), work in tech jobs. We need a house with a yard and are confused with how we should tackle this problem while staying focused on our long term strategy.

Our long term goal (10years) is to displace my income from the job with rental income.

Here are our specifics:

  • He makes about $325K & I make about $300k, a large portion of it is from stocks.
  • We currently own a condo in San Jose and have about $500k equity. Condo can sell for $850k-$900k or rent for $3000 to $3400 per month.
  • We have about $370k in cash, about $225k in investments and 401K

Long term (10 years), we are really interested in living and raising our kids in Los Altos or Mountain View and have an income of about $15k from real estate.

We are confused over the following:

  1. Buy a primary home worth $1.3m-$1.6m in an upcoming area in Sunnyvale/Santa Clara. Sell Condo and invest that money in 2-3 SFH around the bay area.
  2. Buy a primary home worth $1.8m - $2.2m in MV or Sunnyvale with good schools. Sell Condo and buy 1 SFH in bay area and keep $100k aside for rainy days.
  3. Buy a primary home worth $2.2m-$2.6m in MV or Los Altos. Sell Condo and gradually buy SFH investment properties in the coming years.

All this, while thinking of all the risks, losing jobs, downturn in the market, need for a good elementary in 6-7 years,etc.

I really appreciate your help and glad to have the opportunity to learn from other's experience. 

@Keeya Malo Sounds like you have strong financials! IMO, I like multifamily units than SFH for investments and cash flow. MFH has better economies of scale (ie. 1 roof to repair for 4 units as oppose to 4 roofs for 4 SFH), and a multitude of other reasons. I also think MFH have less price swings up and down and stable in the long term. Others may disagree. Any reason why you are thinking of only SFH?

Thanks for your response. :) 

I am thinking of SFH to buy and hold for 5-10 years, as properties in our area seem to appreciate more than in other markets. I also, don't think we need income at this point of time and hence, want to maximize appreciation over income.

What do you think about the 3 options? Buy our forever home now (that we don't need) or wait for another 5-7 years and buy when we need the school districts?

I would choose option 1. But an not so expensive home then also flip/rent sfh or multi family. Just based on what your goals are you should also leverage your cash reserves by getting a line of credit. That way for example you get a line in company name (won’t hurt individuals credit score) for around $1M or so and use that funds to invest in 2 to 3 Properties.

@Keeya Malo  in your case I like #1. Keep the condo as a rental (your first).  Then look opportunistically at future investment acquisitions. 

By buying the less expensive house I think you will maximize appreciation. I think there is better chances for the "lower end" (I use that term loosely) SFH's in the valley to appreciate, as they are the last options available for many people. Thus the high demand for them will probably make them appreciate at a faster rate than the $3-4mil properties.

Secondly, you will have more money to invest, and also to save for a rainy day fund. For instance, you mention high salaries for your husband and you, but the stock component could change quickly, I'd think. So the 300k may be 150k another year. Correct me if I'm mis-assessing that. 

As for rentals, start with your condo to learn the process. Don't sell it, because you have a low prop 13 protected tax base. You can always refi it or take out a HELOC if you want to leverage the asset. The market is quite high now, so I wouldn't be in a rush to buy another investment so quickly. You really need to know what you're doing and find a niche or value added play. Otherwise you're paying retail top dollar when the market is high and exposing yourself to risk. You need to figure out if SFH, 2-4's, etc. are what you want to focus on. Also which markets? Nearby is expensive. Are other areas further out but still driveable worth it? Or maybe commercial? You need to figure all that out, so start with your condo. It'll be a handful getting that going effectively, trust me ;)

Would not sell condo unless you feel the HOA outlook is very bad (i.e. big special assessments on the way).
You also benefit from lower financing cost on your primary condo - when you convert that to rental, the interest rate does NOT change - this gives you an advantage (in addition to P13 lockdown).
You have enough reserves to come down with a downpayment for a SFR in an up & coming area!
All the best!

Those are some great points here. Appreciate your responses. 

Selling the condo nets us approx $400k (conservative sale price & post expenses), that I feel allows us to buy two SFH that could give us the appreciation that the condo wont. What are your thoughts on that?

May be hold on to the cash until we find right investment opportunities? 

In terms of our compensation, for me a 1/3 of it is in stocks and for my husband, it's about 50%. 

The confusion is also on what kind of home to get right now, we don't necessarily need a big house nor a school district. Neither of us are looking for a finished house and location is key. 

We want to eventually live in a nice neighborhood (mainly for the schools that align with our principles on education) and we feel, it'll only get unattainable as time passes. :) 

@Keeya Malo why sell the condo when you can take out a HELOC/2nd to get cash, and still keep the condo?

As for high end home now vs later, that's a tough one. Buy cheapie now, and you have more $$ to invest with. But price differential between high end home now vs future may be greater than cheaper home. May be offset if cheaper home is in improving hood, so as a percent it goes up more, even if it's base cost is lower. Personal decision imo. Either way is good. 

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here