Re: Can I buy my residence as an investment? - Posted by Brandon
Posted by Brandon on May 24, 2006 at 12:39:59:
Let me start by saying, Congratulations for taking the first step to giving your family a better life by investing in real estate. If you think you’re rambling, you’re doing so because you’re excited and don’t know where to start. This, Timothy, is your problem. There are many, many, many ways that people make money with and through real estate. Landlording, rehabs, flips, wholesales, speculation, new constructions, lease options, etc., etc. In your post you touched on at least 3 of these–Landlording, rehabbing and speculation (appreciation). I believe the first thing you must do is develop a plan of action. Narrow down exactly what you want to do. The best way is by reading a bunch of the posts on here. You’ll get pros and cons of every real estate “vehicle” just by reading other people’s experiences.
That’s my “macro” advice. Now let me give you some more detailed “micro” advice…
You’re 28 and have a family of four. You do not have the luxury of taking some risks that others may. You and your family have alot to lose. If, for example, you pay too much for a rehab that needs unexpected repairs, you could be facing some big problems. Not trying to scare you, just telling you to take extra caution.
I am a strong believer (and others may disagree) that you should not mix your real estate investments with your home. Now, don’t get me wrong, you can use some of these techniques to get a good deal on your family’s home. But, what may be a great investment may not be a good home for your family. Do you catch my drift? Here’s an example…Say you sell your single family home and buy a duplex. You plan on living in one and renting out the other. Let’s further assume that you can get it for 60 cents on the dollar and the rental income pays the mortgage. So, you could essentially live for free. Great Investment, right? Sure! You’re thinking, “Sign me up!” right? Well, what if you get a tenant next door that smokes heavily and is up at all hours partying? Is this “great investment” now worth your family’s lifestyle? Surely not.
Let’s take another example, this one a little different. Say, for example, your wife is a stay at home mom and for whatever reason you only have one car. You (the husband) leaves for work early and takes the car. You have children at home who need some way to get to school. In the process of looking at homes you come across a great house in a great neighbord AND it’s only 2 blocks from your school district. In this case, as the family man, this house may be worth 95%-100% of it’s asking price to you. Because it’s everything you want and your wife can walk your children to school everyday. But, as an investor, you run some numbers and realize that if you pay more than 85% of the asking price, you’ll have negative cashflow. This is a great “home” but not a good “investment”. Do you see where I’m going with this? Keep things separate, and don’t jeopardize your lifestyle.
So, to answer some of your questions…
Should I find a duplex or other suitable multifamily to live in and rent while fixing/updating to increase cashflow?..Yes, but you don’t necessarily have to live in one of the units.
Or do I look for a single family home to do the same with? Do I look for a “nice” single family that will appreciate and wait it out? …NO, NO, NO, NO, NO, NO, NO. Never, ever invest for appreciation only. Especially now! Real estate is so wonderful because it has so many income streams: cash flow, tax advantages, tax write-offs, appreciation, etc. Appreciation alone is not enough. Sure, it has made some people very rich but, it’s a risk that some people can’t take.
Or forget about my home as an asset and put my family in the home we will grow up in? Yes. And, then invest with money on the side. You can not forget that this real estate thing is a business. You have to run it as one.
So, to sum up, develop a plan. And then find a way to put it into action. Learn to search the archives on this site and you’ll be able to find any answer you need. Your credit issues that you talked about are probably a non-issue if you find the right mortgage broker.