Why choose to house hack on my first deal rather than buy a single family home or even just an investment property? The key is it starts with your investing goals. Before even settling on real estate, I established my main goal is to create multiple passive streams of income that will continue to put money in my pocket regardless of whether I work or not. Once I established that creating passive income streams is my main focus, I explored different ways to create/acquire passive streams.
I quickly settled on real estate simply because when you look at the most successful and wealthiest people globally the one consistent thing, no matter how they acquired their wealth is real estate. They all invest in real estate as a either a means to attain wealth or as a store of growing and maintaining wealth.
This is what lead me to focus on real estate and as I am looking at developing passive streams, buy and hold investing is one of the most straightforward strategies. I settled on a duplex for these reasons:
- Inventory and Price
Inventory and Price – I had to find something that was in my price range in the town I live. Some investors are comfortable managing properties from a distance starting out, but I want to be close initially thus limiting the areas I could invest. Based on what I could afford and the properties that met my goals, I settled on a Duplex as it was under $200k and in a C+ or B- Neighborhood that is up and coming. Yes there were nicer duplexes and other investment properties but they did not meet both my pricing criteria and location criteria.
Flexibility – Looking at a multi-family property versus a single family property provides additional flexibility. I am able to live in one side in the interim and long-term rent both sides. If one side is vacant I only lose 50% of the income versus 100% in a single family home. Duplexes are still traded similarly to single family properties that it provides additional opportunity to sell to either investors or non-investors in the future.
Financing – The last piece is that I am able to live in one side and rent out the other. This allows me to cut down my rental payments while still having my mortgage covered by the other tenant. I still have taxes, insurance, and maintenance to take care of but the majority of my expense is paid for and I’m building equity. Along with building equity, properties between 1-4 units are able to qualify for traditional bank financing meaning I am able to go through the same lending process as buying a regular single family home. Additionally, I am able to utilize FHA financing and put down only 3.5% versus 15% for a conventional duplex loan. Thus my cash to close is less and I am able to have more cash reserves in case of capital expenditures (like replacing a roof) or maintenance (like fixing a toilet).
This is why I chose a duplex as my first property – Remember it all starts with your goals for investing then from there you choose a strategy.