Help me make the right decision...

General Real Estate Investing
1

Hi All,
This is my first post but I’ve read many postings over the last year. In the last 5-10 years I have been reading books by Robert Kyosaki, attending a few seminars, and have had a strong interest in entrepreneurship with more pull towards real estate. Anyways, My fiancé and I are steps away from closing on a nice single family home for us to live in, when after talking with a mentor, he’s advised us to stop the deal and buy a duplex-4plex instead. As far as starting out in real estate investing, do you all advise that we move forward with a duplex-4plex, live in it, and then continue to build a portfolio this way, as opposed to getting a single family home for ourselves and looking for investment options later?

Thanks!
Jason

2

Jason,

On the surface, this is probably very good investing advice, if not financial advice.

Obviously, there are several factors to consider going this route.

I would ask myself at least these questions:

  1. Do I want to live next to my renters?
  2. Am I going to be able to maintain a business relationship with my renters, or not?
  3. If not, who’s going to be the ‘bad guy’ when it comes to enforcing the terms of the lease, with my new friends, the ‘renters?’
  4. After my business relationship with my renters, devolves into a personal one, am I prepared to perform favors for my new ‘friends,’ by accepting rents late without penalties, or fail to raise the rents in a timely manner, and/or fail to do any number of things that might offend my new ‘friends?’
  5. Why am I buying renters for neighbors, instead of neighbors?

Sure, in theory your new renter ‘friends’ will be paying a portion of your housing costs, depending on the price point, location, and financing factors. Yay.

And eventually you’ll move away from all your old renter-friends-neighbors, and then what? Move into a house, after all?

Meantime, when you try to qualify for a house loan (within say four years, or so), the four-plex income will not help you qualify for a loan. Instead the four-plex will show up more as as a liability on your profit and loss statement will likely reduce your buying power. Especially with the new FrankDodd financing crap hitting the fan.

So, it’s either buying a bigger, nicer house now, and then buying an income-producing, four-plex later, and not living anywhere near your renters, or …doing what your mentor suggests. I don’t know.

Frankly, you’ll have a better chance of financing five or more units, after the purchase of your home, because the financing is based more on the performance of the property, and less on your personal income qualifications.

Meantime, I’m sort of kidding about the neighbor from hell thing. However, there’s a reason most homeowners want to live in houses, and not their income property.

And just for giggles, you can build wealth faster by investing in properties that are under-performing. Ie: vacant, needs work, and/or mismanaged, etc… This way you can improve the property value and marketability (force appreciation), and then either trade up, sell up, or move up the food chain, with your increased equity.

If I were to buy a 4-plex and live in it, I would want to find a fugly fixer version, so that all my sacrifices for living and dealing next door to my ‘income stream,’ as it were, was more worth it.

3

Hi Jason,

It depends on what you want to do and what your financial situation is. There are several people who have bought small multi-family buildings, lived in one unit, and rented the rest of them. It can be a great way to start out. Done correctly, you can many times have the rent from the other units mostly subsidize your housing expense or pay the mortgage all-together. You as the landlord, however, will only be footsteps away from your tenants. We still have tenants and applicants calling/texting us early in the morning or late at night sometimes even though our lease states our tenants are to only contact us from 8am-8pm CST unless in case of emergency.

Buying your own sfh to live in and then buying an investment property will take more money to get started, but you would live away from your tenants. We started our real estate venture by buying a separate investment property that we didn’t live in.

Here are some things to think about:

What does your fiance think about REI? Will you be doing this together?

Does your fiance really like the house you have under contract? Would she be very disappointed if you backed out of it and bought a duplex-quad instead?

What about the location and school district of the sfh compared to a small multi you might find? Would the sfh be in a better area?

Can you buy the sfh and a duplex-quad now? How long would your investment plans be delayed if you could only buy the sfh now? Would that really bother you by having to wait to get started in REI?

4

Thank you both for your quality replies. It really helps to have some framework and questions to contemplate. As I told another person, I am tired of reading about, wanting, and talking about “one day” getting into real estate investing, and I want to start putting action behind those words.

Thanks again,
Jason

5

It sounds like you feel you have an inner calling, but are conflicted.

My advice: be consistent with your goals. First, ask yourself what is your main goal? If your main goal is to make money real estate investing and applying your education to become a real estate millionaire, do it and be consistent about it. Once you determined what your main goal is, do it, feel it, be true to it, and live it.

Either

a) buy a multi-unit rental and live in one of the units (like I do). I live in one of my 18 unit apartment buildings. You’ll learn to screen out the troublemakers in the application process over time and it’ll get easier.

Or

b) Seek out distressed single families in nice neighborhoods, live in part of it, fix it up and flip it a year or two later for a lot more than you bought it for, which also brings you closer to your goals to becoming a real estate millionaire (I’ve gone down that road too). There’s nothing wrong with living in nice houses in nice neighborhoods, but damnit, be consistent with your goals or you’ll never fulfill your dreams and you’ll always be living in that cloud of regret and probably be imagining thinking to yourself years from now saying, “Geez, if only I was consistent with my goals and inner calling, I’d be a real estate millionaire by now. Oh, oh why didn’t I trust my instincts and follow my inner calling??”

Will that SFH double in value a year or two from now after you renovated it? If not, you have your answer.

6

I’d like to add something to Dave’s post about goals.

I think it’s important to set some realistic goals along the way that are reasonably attainable. Then you can celebrate successes along the way rather than be depressed you don’t own 1,000 rental units after two years.

I set out to replace my military income by the time I retire from the military. Done.

I wanted to have 20k per month gross rental income so I could count on 10k per month after the houses were paid off. Done - with a caveat. We re-financed our rentals to have money to purchase a nice house for our family with no mortgage. We reset our clock on our mortgages to 10 years, but our house is paid for.

Now that we’ve attained these goals, I’ve set a new goal of 100k/month gross income. This part is to be continued… If I hit it, great. If I don’t, at least we have the money we need to support our lifestyle and I don’t have to worry about what job comes next after the military!

7

Adding to what Dave and Justin have said above…

If you do move forward with a duplex or fourplex, you will need to become as knowledgeable as possible about all of the local landlord rules and regs, and to be the “bad guy” if needed. However, you could delegate these functions to a professional property manager. It may sound circular to hire a pm when your tenants are in the same building you’re living in, but the pm will know all the rules and can take care of any issues that arise so you don’t have to. Also, you may find it helpful to have rental income insurance just in case.

I’ve rented out long term and I’ve done lease option refinancing and there’s way more to do and learn about this business than I ever realized before taking the leap. But there’s only one way to really learn, and that’s by doing :cool

Good luck!

8

Here are just another couple of thoughts.

First, if this is your first time buying real estate, it will be much easier to manage your personal residence. Self-managed rentals can require a lot of time and money to keep going. This includes finding and screening tenants, property management, rent collection etc. The maintenance alone could be an added stress unless you are the fix-it type.

Second, depending on how far you are along in the purchase of the SF, you may lose your EMD and have incurred expenses related to the closing of this property. There may also be other lending qualifications to meet for a 2-4 home purchase. Hate to have you cancel this deal only to find out you cannot qualify for the other.

Third, just because one investment route works for one person, does not always means that it is the best route for another. As some of the other posts mentioned, you and your family need to use the information from what you have read and learned and then may your own financial plan. Then stick to it and do not worry about any other avenues.

9

Hey is this my friend from Fresno ? Contact me on fb if so

10

how about multi singles housing on one property. i see one for sell in Louisiana 4 house two trailers and room for more. at real bargain. i had a friend looking at it but she didnt want to move. might think about that. you would be fulfilling both needs. have you income to take care of your on place. free or very little out of pocket. or profit. if you are in Chicago a lot owners will rent the garage separate. i found a place for a friend that he lived in one side rent the other living free. making 100.00 profit by renting the garage. he walk to work one half blocks.

11

My advice: be consistent with your goals. First, ask yourself what is your main goal? If your main goal is to make money real estate investing and applying your education to become a real estate millionaire, do it and be consistent about it. Once you determined what your main goal is, do it, feel it, be true to it, and live it.

totally agree with this one

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