Buy what first? A house or a multi family?

Question

Matthew Holderly · Answer

Very nice post @Curtis Rouse - I agree with all of the above, but would add that, assuming you don't have unlimited financing, single family residences (SFR)s will count as a liability for future mortgage qualification purposes because you can't live there yourself while still claiming it as income producing (should you rent out some of the rooms for example). Multifamily properties on the other hand allow you to use a percentage of future rents to qualify initially (with an FHA backed mortgage anyway) and after a few years, you can count the actual income from a multifamily as income for qualification for your next investment. Long story short, SFRs will generally count against you as a liability where multifamily properties will help you qualify now and likely in the future as well.

Jonathan Twombly · Answer

@Phil Grady have you looked in Poughkeepsie or other places north of Ossining?

One market I have liked for a long time is Albany.  It's anchored by the state government, hospitals, and universities, none of which are going anywhere anytime soon.  Because the state administration changes every four years, there is a very high population of renters with solid credit.  There is also a lot of MF there, both of the brownstone variety downtown and 2-families around the outer areas.  There are one or two particularly rough areas, but those are pretty obvious if you drive around the city.  The rest of the city is stable.  I also know a number of people who really like Troy as an investment location, though it's a little bit rougher around the edges than Albany.  But the price point is a bit more affordable, not that Albany is particularly expensive.

My advice for investing in places like upstate New York is that you should watch out for two things.  First, make sure the population is not declining.  Stable is okay, growing is better.  But you should look on the metropolitan level, town/city level, and zip code level, which you can do with a website like Hometown Locator.  If the population is declining in the area, just avoid it.

The second thing to look out for is good school districts.  If you can find rental property in good school districts where the population is growing or at least stable, that's a good sign.  The best rental tenants are the ones who cannot afford to buy a house but are hardworking and want their kids to be in the good school districts.  They are going to move mountains to pay their rent because they want their children to get a leg up in life.

Curtis Rouse Jr · Answer

@Phil Grady

Welcome to BP!

So my suggestion for your dilemma would be to buy a MFH (1 -4 units) and utilize a FHA loan (3.5% down) that way you are saving money vs renting and you would be getting cashflow from the other unit(s) that you are renting out. Once you have stayed in the property for at least 1 year, you can move out, rent out the unit you just left and do it again. We call that house hacking that @Brandon Turner coined that many investors utilize to get started early in their investing career.

With all this being said, it's all dependent on your market because possibly in NYC with the higher entry point you get the appreciation, but not the cashflow. So I would really analyze your market and ask local investor in your particular market what would be best. I'm sure there are plenty or meet ups or like minded investors that you can take out for coffee. A perfect example is where I currently reside, there is slightly any cashflow on multi's and/or sfr's so I started investing about one hour and a half away into a  market that meet my requirements and now have my second apartment complex under contract. So do your homework and with the hot prices right now, be very careful and run all your numbers utilizing the bp calculators if you don't already have a spreadsheet ready to go.

I hope this helps and best of luck to you!

Thomas S. · Answer

Buying a SFH for yourself will be a liability not a asset. Home ownership is far more expensive that renting in almost every market. There is far more cost that just PITI in owning a personal home.

You would be farther ahead to invest first, house hack or simply invest and keep on renting, till you have enough surplus income to throw away on a personal home.

Darren Sager · Answer

@Phil Grady I would get over the fact very quickly of not being that fond of living in NJ and get focused on your financial future.  Your move to NJ (if that would be the case) would be temporary. It's not your lifelong family home.  The positive effects on your life would be permanent, especially your financial future.  Northern NJ in an incredible place to invest.  There are certainly more opportunities here than in Brooklyn.  I've been at it here for almost 20 years and I can't complain.

Adam Petterson · Answer

@Phil Grady

Phil, It is all about your comfort level and what you are looking to get out of your purchase.

Buying multifamily definitely has its upside as you can basically live for free if you buy right by renting out your other units. It will also give you a test run at managing properties as you will have other units to take care of when it comes to maintenance, repairs, rent collection, etc. The down side to multi family is that the purchase price is higher, so your 3.5% down will still be a substantial amount of money.

Single family homes aren't a bad way to start either. If you are living in a single family it would be very beneficial to have a roommate in order to split some of the costs (mortgage, utilities, etc). As said above, a single family home that you live in can actually be a liability if you don't have any cash-flow coming in.

Jason Edwards · Answer

@Phil Grady I would purchase a multifamily home and utilize the rental income to offset your monthly mortgage If I was starting out today.  If you get the right deal you might be able to be cash flow positive once you have the units rented out at market rate.  My first deal was a 3 family house hack in Brooklyn which turned out extremely well.  Now, the type of tenants will also dictate how much work you will have to put in to maintain the unit.  Hiring a management company might alleviate some of the day to day maintenance and stress.

If the inventory and price range in Brooklyn does not fit your criteria then purchase a multifamily in NJ and house hack until you can refi and pull out cash to buy your ideal Brooklyn property or sell the place to purchase your Brooklyn Income Property.

Have you looked at any of the Brooklyn homes up for auction?  Check out the house hacking podcast and materials on the site

Phil Grady · Answer

Thank you guys for the insight. My dilemma right now is that I would love to just move into a house now for peace of mind sake and build from there, but the place I want to move to (upstate NY near Ossining) doesn't have a lot of multifamily houses for sale.  On the other hand, New Jersey has plenty of multifamily homes for sale, but I'm not exactly fond of living in New Jersey. I'm trying to find a multifamily in Brooklyn but that is becoming harder and harder to do. Thank you for the feedback on what is good to do. I go some decisions to make

Jessie Tetreault · Answer

All these posts have very good information @Matthew Holderly @Curtis Rouse. Something that I'm not a fan of SFR is the fact that if you have it rented its 100% occupied, on the flip side of this coin if its vacant its also 100% vacant vs say a 4 plex if you have 1 unit vacant its still 75% occupied, 2 units 50% vacant. You get my drift. Also just the fact of finding a good deal on a SFR you have only acquired 1 unit vs a multi family you have required multiple and will most likely have better cash flow. I will say, and this is also dependent on what market you are in, a SFR as far as re selling later down the road will have mulitiple pools of buyers, people who want to live in it and use it as a primary home, an investor, ect. vs a multi family probably only someone who wants to invest in R.E. and become a landlord will only buy it and they are going to want a deal vs the SFR that you could sell as retail value. The big one for me for multi family vs SFR is the fact of being able to house hack it. I mean living somewhere is a need but you could possibly do it for free or extremely discounted. i hope this helps. Also these are just my opinons of a SFR vs MFR. The greatest thing about R.E. investing is that there really isnt one right way, you can make money in anyway that works for you.

Buy what first? A house or a multi family?

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