Advice on buying my first property

[Joseph Chiuchiolo]

Hi all,

I'm currently 19 years old and am ready to buy my first investment property. The only question I have left to solve is wether to buy a single faimly home or a duplex/multifamily. No matter what type of loan I get I have to live in it for the first year before I have the ability to move out and rent out the space I'll live in. I'm trying to figure out if it'll be better to have roommates for the first year or more, or to instead buy a duplex where I would live in one side.

Thank you!

[Ryan Lesley]

Hey Joseph,

I'm glad to see you starting your financial freedom journey so early, you're way ahead of where I was at your age so awesome job and stay the path.

What @Scott E. said is very solid and fundamental on how you should approach any market you're looking at investing in. All I would add to it is this. 

When analyzing these deals, also take into consideration future changes and how it could possibly take an ok deal and turn into a great deal. 

For example, here in the Denver market multifamily/duplex+ properties don't typically make investment sense from a house hacking standpoint, whereis properties with a basement and separate entrance very much do.

When speaking with a client who only plans on living in the house hack for a year, my question to them would be: 

After you move out do you plan on renting out the whole house, or do you have the option (like with a basement and separate entrance) to mix it up and maybe long term rent out the top and mid term/short term rent out the basement? Giving you the stability of a long term rental with the higher, but sometimes seasonal, returns of shorter term rentals.

Making sure they do not configure the house in a way that would limit them from renting it out to only one type of strategy is also a consideration. Since it ensures the most flexibility if they did need to pivot from a short term rental to long term rental. Maybe a law changed limiting their ability to short term rental the home, but because they walled off access from the 1st floor to the basement, it is now much less desirable of a home in terms of renting the whole home out. 

The other thing I would consider if you really wanted to get into a multifamily/duplex+ and the numbers don't make sense right now is: If I live in one of the units and rent the rest out, how negative am I relative to how much it costs me to rent?

So just say you get a quadplex with 2/1 units, and after renting out the other 3 units you're still having to cover $900 a month. If you're paying (or would pay if you did rent) say $1,900 a month for a 2/1 apartment, you've essentially reduced your monthly living expenses by $1,000 - on top of the fact that you're increasing your equity in a property that in turn is appreciating which in turn is increasing your net worth. 

Not to mention that depending on what the future holds: 

1. Rents could increase to a point where when you move out after a year and you rent all the units that you're now covering the full amount, if not hopefully cash flowing. 

2. Interest rates decrease, you refinance, it cash flows, you live there for free/ or you move out and it cash flows even more.

Of course, it's important to acknowledge that even after renting out all units its still possible that it doesn't cover the full amount or cash flow, and rates don't decrease. The biggest question is if that happens, would you be ok to wait another 1 or more years for this property to start cash flowing? Is the appreciation more important to you than the cash flow?

So just to circle back to what Scott said, definitely compare the two and find out what makes most sense. But also take into consideration the future changes that could happen. Consider best case and worst case scenarios like I've mentioned above and then make a decision that feels in line with your goals and risk tolerance. 

Hope that helps, and best of luck 🤝🍀