Housing Dilemma

Now that I have permanently moved to my new city, it's time to start looking for a multi-family rental property to buy!

I am determined to succeed this time after I failed to buy a property in my old city earlier in 2016. I love only paying $400 in rent to live in my friend's basement, but I'd much rather have a place of my own that earns me money. Plus, the basement gets a bit cold when the high of the day is -1.

The path going forward seems perfectly clear after coming back from Camp Mustache SE in January:

-Find a realtor.
-Look at properties
-Buy a property
-Move in
-Do any renovations
-Find tenants

But there's this tricky thing called my heart getting in the way of The Plan.

Every day on my way to and from work, I pass a house that's for sale. It's on a deep lot that ends in trees, which is what I prefer for a backyard. The price is very reasonable ($129k or about $750 a month). It's been recently updated. More than enough space for my stuff and all my hobbies. So what's the problem?

The adorable SFH

It's a single family house. I couldn't rent it out unless I wanted to get a roommate, which I don't.

This is the first real challenge to my FI principles I've encountered, and I've got to say I don't really care for it. All the Mustachian or FI-related things I've done in the past have aligned with what I would have done otherwise and so haven't been a problem. Max out my 401(k)? Done. Max out my Roth? Sure. Keep my reliable car from college instead of getting a shiny new car? Yeah sure nbd.

I feel pressure, sometimes, as a younger FI blogger to be perfect. Several people have joked I'm a real life guinea pig for the bigger bloggers out there (Mad Fientist, in particular, as he actually has a real time guinea pig tracker going for an imaginary person that is more or less exactly at the same point in life as I am.) I actually like that title most of the time. I'm pretty sure I'm the only one putting pressure on myself but I still am stressing out over this choice.

Do I continue along the path I've set out for myself- accelerate my timeline by getting a multi-family rental property- or do I continue along the slow and sure path and get an incredibly adorable SFH?

Either way, I wouldn't be setting myself back from where I'm at. This choice is about the speed of hitting FI. I would love, love, LOVE not to be tied down to this particular area due to my career. If I could be FI tomorrow, I would take it in a heartbeat despite the fact I'm very happy with my new job. I have so much I want to do with my time that doesn't involve having a career. Getting a multi-family rental property would allow me to reach that so much faster (something like hitting FI at 30 instead of 35).

Being FI would mean I could tell my sister, yes, I will go with you on a last-minute ski trip to Canada instead of sorry, I used up all my vacation already this year to go see you in England.

On the other hand, if I continued on this same “slow and steady” path, I would have all the space I needed for years to come to do whatever hobbies my heart fancies. The basement is perfect for stained glass work and a work out area. The upstairs bedroom could be my craft room. One bedroom downstairs for me, and another for a guest room. That still leaves me a living room, dining area, and kitchen. I don't really need a family room, formal dining room, or a formal living room. The backyard would be perfect for bonfires with friends, a big garden, and even room to play yard games like bocce ball, bags, or croquet.

So, my readers, I ask for your advice. What would you do in this situation? Buy the cute SFH or get a multi-family property and accelerate my FI timeline?

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53 thoughts on “Housing Dilemma

  1. There will be other houses as nice as this in better cities at times better suited to your purposes. You have the “fever” and only after you recover will you recognize the negatives of this place. This temptation is a test.

    • Don’t get me wrong, it’s a nicely finished basement and I love only paying $400. If I were to buy the house, I wouldn’t be able to save much per month towards a multi-family and it would take me a while to save up enough for a 30% down payment.

  2. Aghh, I feel you on this one. It’s tough to balance what you want to do in your heart versus what makes financial sense. We house hunted for about a year and had to learn the hard way about sticking to the numbers.

    So my advice would be to look for that multi-family home. It will accelerate your FI and provide a potentially higher amount of passive income than just a single family home.
    Mrs. Picky Pincher recently posted…What A Frugal Weekend!My Profile

    • I know what I should do…… but sometimes it’s difficult to stay the course. Argh. The difference between owning the two properties would be about $23k a year which is HUGE. ($9k for mortgage, $14k in rent brought in). That’s too much money for me to make the ‘wrong’ choice.

  3. I’m taking the slower path to FI. Mostly due to lifestyle choices. Sometimes I want to go buy a multi family property, but realize the action will cause more stress on my marriage. So I would say buy the multi family property now.
    SavvyFinancialLatina recently posted…Go VoteMy Profile

  4. This is tough. And I understand exactly where your heart is coming from. One thing that really stood out for me in your post is when you mentioned you really don’t want to be tied to the area or your job. The house may do both. You never know what sort of unexpected expenses you will have with home ownership, even with a newly renovated house. Plus, picking up and leaving is infinitely more difficult if you need to sell a house. On the other hand, you could rent the house out if you needed/wanted to leave the area…

    My advice? Take your time! This is definitely one of those decisions that deserves ample time to ponder and evaluate.

    • I plan on buying at least one property around here, and probably two, so I will have ties to the area no matter what I do. It’s not a terrible thing, but I just don’t think I want to live here for the rest of my life. For one thing, it’s FLIPPING COLD right now and in the winter. I want to live somewhere where my face doesn’t freeze from going out in -5 degree weather :/

  5. Tough choice, and shows that the path to FI is a road full of decisions. This is a BIG one (housing and transport, housing and transport!! Get these two right, and the rest doesn’t really matter). Listen to Amanda @centsiblyrich, take your time, be intentional.

    Life is about both $$ AND Living. You need to have both. I’d suggest you build a “Pros & Cons” table, and list as many on both sides for buying the multi-family and the single family unit. Keep the table open for a few weeks and add to it when thoughts come into your mind. You may be surprised by the results.

    Good luck, and keep us posted!! We’re all interested in the guinea pig’s choice!!

    • Thanks for the reply, Fritz. I’m not making a move on any property until mid-January, so I’ve got lots of time to mull over the decision. SO. MUCH. TIME.

      • I found myself in a similar situation with my wife. We (also added tiny house into the comparison, but) ultimately ended up choosing multi-family. We’re expecting to close late January/early February. I wonder… what did you choose?

  6. Sometimes being so practical stinks right? I would probably stay in the basement as long as you can muster. 400 and no obligations is awesome. Unless a multi family can cash flow better than what you’d save there, I’d stay. At the end of the day though, it’s your life. I feel pressure to be FI perfect too but sometimes you have to make the right call for you and take risks.
    Julie @Millennial Boss recently posted…The Do’s and Don’ts of Planning Your Budget-Friendly WeddingMy Profile

    • It does. I like the basement (and paying a flat $400 for housing) but he’s going to try to sell the house this spring so it’s a strictly short term kinda thing. The multi-family properties around here have some seriously great cashflow possibilities, assuming occupancy levels stay up and whatnot.

  7. I would recommend you hold off on buying a SFH until you are sure that is the route you want to go. There will be plenty more of them to choose from in the future if that is what you decide. Once you buy a SFH, it is tough to get out of later if you want to make any kind of profit or break even if it is short term.

    Personally, I would hold off for at least a year and start making connections with other investment property professionals. You may decide you don’t want to go the multi-family route. If that is the case, you only end up squirreling away another year of money and a much bigger down payment on a SFH if that is what you choose.

    Also, If you haven’t joined BiggerPockets yet, I would strongly encourage you to do that and also start going to their local meetups. You will get tons of advice and meet people who can recommend local realtors who specialize in investment properties.

    Good luck!

    • Thanks for the response Ryan. I’ve decided to hold off on getting a SFH until my rental property portfolio is better established.

  8. Like others have said, take your time and don’t worry about it too much. Houses will always be available and a better deal is right around the corner.

    What prevents you from getting the SFH and an investment property over time? Just thought I would throw that idea out there since the prices look so low to someone from the West coast.

    • The only thing stopping me from getting this super cute SFH is the type of loan available. I will be using a VA loan to get a primary residence. I don’t want to “waste” the opportunity of not having to have 20 or 30% down for a property. VA loan I can put down whatever I want, which I think will be about 7 or 8% so I have cash on hand to renovate or update as needed. Not to mention, my company is paying for the closing costs of any property I buy in the next 12 months.

  9. Clearly I have a very different perspective than everyone else because I was coming here to say buy the SFH! It’s only $129,000! That’s so cheap! I am not at all into rental properties though, live in a higher cost of living area, and have zero interest in moving, so I think my perspective is a bit different.

    What I will say though is that you shouldn’t make your decisions solely with FI in mind. You should make smart financial decisions that bring you joy. Buy a multi-family property if you want the challenge of owning and living in one. Buy a SFH if you want the challenge of mowing grass, maintaining the outdoor walls of a place, and living in a SFH with or without a roommate and it makes more financial sense than renting a place. Buy a condo if you don’t want the maintenance of a SFH, though I don’t think your area has condos nearly as much as where I am. Don’t buy a place specifically to increase your speed to FI – index funds are still pretty good if you don’t know you want to own rental property.

    • I’ve always been interested in the landlording side of the FI world. Although, to be fair, the vast majority of things that interest me could also be applied to single family houses. I do want to diversify my income streams though, and rental properties are about as passive as you can get.

  10. We went through something similar. We were renting and wanted to buy, but I wasn’t sure that I wanted to be responsible for home upkeep at all, let alone maintaining it for other people paying rent. So we bought single family home. Then years later, once we had the swing of homeownership, we bought a two-family strictly as an investment property.

    I would say do the multi-family, as long as you’re sure you want the responsibilities of homeownership along with the possible stresses/annoyances of having to find, keep, and live with a renter.

    ALSO: Your comment “Rental properties are about as passive as you can get” made me laugh considering what we’re going through right now with some new renters. It’s true sometimes, but definitely not always!
    Norm recently posted…Financial Implications of the ElectionMy Profile

    • Hey Norm thanks for the comment. I feel like going into multi-property before doing a SFH is like having a set of twins before you have a single child birth. It’s crazy, it’s a mess, but when that second birth comes around (sfh) it’s going to feel like a breeze!

      …at least, that’s what I’m hoping LOL

  11. I think it depends on two things.

    A) is emotion worth delaying your FI 5 years? (For context, I said yes when I bought a new car. But I’m a “car guy” so it was a worthwhile “luxury purchase” to me.)

    B) Do you plan on settling down with someone? Because if you do, then you might be looking at buying another house down the road with that person. (this is more of a personal question and don’t expect an answer. It’s just relevant for you to think about long term since you would either need to rent this property, or sell it for something else. Where the multi family home would just solely used for income at that point.)

    • A) No, it really isn’t 🙁

      B) I would love to! That’s an excellent point I hadn’t thought of. Thanks for commenting!

  12. Run away! I bought the cute single family home two years ago. Now I’m perpetually grumpy about the drain on my finances whenever anything goes wrong. Cracked toilet seat? My problem. Heavy rains? Freaking about leaks the whole time. But Heart doesn’t want me to move into a rental (where someone else would pay these things) because this is MY house, and I like it (I have to like it, it’s expensive)

  13. I’ve heard from so many friends about how nice it feels to own a home.

    I’ve also had experience managing a quadplex rental property.

    The thing with rental properties is that most of the time, stuff will go smoothly and you probably won’t even be bothered. It’s just these things that come along once in a while like water leaks or having bad tenants that just ruins your day(s). If you’re a DIY type of person, you’re also going to have to do a lot of cleaning and fixing. That’s why I eventually resorted to hiring a building manager so I wouldn’t have to deal with most of that stuff.

    If I had to do it all over again, I would’ve never bought a rental property. Yes the extra cashflow is great but I would’ve gladly given that away for my own home so I can work out and have friends over. I don’t like micromanaging and being what I feel like is an adult babysitter.

  14. Been in the new city a month and already thinking about SFH? *shakes head sadly*

    Rent for now. Give yourself some time to explore, get a feel for the region. Keep track of what you’re experiencing, though, since your renters will go through the same. Join the local real-estate investors association to speed up this exploration, meet like-minded folks, and network with many of the service providers you’ll need.

    As for the “twins” analogy, well, it worked out that way for Mom with us kids. 🙂

    • To be fair……… this is the third time I’ve moved here, so I know the area well already! I like the idea of the real-estate investors meeting though!

  15. Well, how much would the SFH rent for if you moved? If it will cash flow well, why not? I agree that a multifamily is usually a better deal, but if it will cash flow well, a SFH is not a bad deal. I would say if you can meet the 1% rule, maybe consider it.

    • To meet the 1% rule it would need to get $1290 a month. Right now, comps in the area are going for $1200, so if I could talk the seller down $9k it’d be a decent rental property. Not great, but it would cash flow.

  16. It sounds like it would be easy to make a rush decision here. For you, I don’t think buying a SFH is a good idea. I’m sure the property is absolutely amazing, but in no way am I seeing anything about it that makes sense.
    1. It’s too big – it’s a family home, do you really need all this space at this point? And utilities for all that space as well..
    2. Add taxes, utilities, emergency repairs et.c to the $750 and you’re going to be heading back into the territory of your old rent.
    3. It’ll be harder to rent out than an apartment when you decide to move.

    I’ll be looking at a SFH for myself in the near future, but there’s 2 of us with the hope of +1 in the next year and +2 in the next 3. We’re also planning to move into an area where multi family units are rare (super small town) and the most we can get if we’re lucky is a basement suite in the house. Our plan is to airbnb a bedroom to make up for it though.

    Since you seem to have a bit more options for multi family housing, keep saving up for that downpayment, take your time and make the decision when the time and opportunity is right. Also, you have so much changing for you right now, it’s stressful as it is, don’t add the stress of being a first time house owner!!

    As for having to be perfect, you are you! Everyone is so very different and only you can know what’s right for you. It’s of course easy to get clouded by our emotions and desires for a big change. Just breathe in, breathe out. I like reading your blog because you are unique and have a different outlook than so many others. Not because you’re a “test subject”.

    Best of luck!

    • It would just a tad on the big side for me alone, but I could spread out and have lots of room to work on my hobbies! The $750 covers PITI, but who knows what condition everything is. It was recently renovated, but that could just be the real estate equivalent of shining a turd.

      Also, are you trying to make me cry this early in the morning? Thank you for all the kind words. Seriously, you made my day!!

  17. I have to say I’m more positive on the house. The difference between $1200 and $1290 isn’t huge, honestly. While I hear you on the multifamily, and I own one myself, this doesn’t seem like a terrible deal and it would definitely raise your quality of life!

    If you have the fortitude (this is the hard part), why not go and look at it, with a firm price in mind above which you will. Not. Budge.

    As to moving…I think I have learned that one often ends up where one is.

    I’m dying to know more about the MMM tracker.

    • I think I’m going to stick with the original plan of buying a MFH. I sigh a little every time I drive past the cute house though.

  18. Why are you in such a rush? Buying a space heater for your $400/month pad is much better than spending over $100k on something you don’t even really want. Wait for the right multi-family home if that is what you really want.

  19. I’m not sure you’ve run the numbers completely yet: How much of the $750 monthly payment is mortgage principal? You should subtract that before comparing to your current $400/month payment since the principal part is going to equity. You could also figure the tax savings you’d get on the interest and property tax deductions, assuming you’d itemize. These last two would only apply for as long as you’re renting from the current place since you’d get those if you were to buy a MFH. And obviously you’d need a monthly maintenance budget for the SFH. The net difference is still probably negative, but maybe not as big as it initially appears

    A couple other thoughts:
    * Do you think you’ll find a viable MFH before your current gig expires?
    * Will MegaCorp (or MegaCorp’s relo company) pay closing costs on an MFH like you are planning? Seriously, are you really REALLY sure?
    * This comment surprises me: “but who knows what condition everything is. It was recently renovated, but that could just be the real estate equivalent of shining a turd.” You are allowed to inspect a home, informally and formally, before purchasing to answer those questions. 🙂 If I were planning to do most of the initial property management work for a home, I’d prefer to have some experience at buying and maintaining a home before jumping in. That’s just me, but a point that seems relevant to this discussion.
    * If you’re buying a SFH to live in it for some time before renting, the 1% rule doesn’t have to be met exactly. Rent might be higher in a year or two (or might not!)

    I’ve struggled with the head vs heart decision on FI as well. Just like you don’t want to waste all your life working for MegaCorp, you want to be careful not to waste your life while working toward FI. Only you can determine what is defined as “waste”, though. Good luck!

    • Hi T-Rav, thanks for commenting. I think I will be able to find a MFH easily. They are much more abundant in this area than my last city, and I know this area way better. I haven’t included calculations for the MFH comparing it to the $400 I’m paying now. This is a very temporary gig. MegaCorp is really going to pay all the costs associated with my housing search. All I have to do is use their ecosystem for everything, which isn’t that big of a deal to me. I would absolutely inspect any property thoroughly before I buy it. Right now I’m in the stare longingly as I drive past phase…..

  20. Interesting post. What have you come across so far in terms of mortgages that allow you to sublet a part of the house (which is what I assume you aim to do?) Have the loan terms been stricter for it? or do they want a bigger deposit?

    • The mortgage I will be getting doesn’t specify anything against subletting. Technically, since I’ll be buying a property specifically designed for multi-families, I won’t be subletting so I’m not worried about it. I don’t need a higher deposit since this is my first property and can get a conventional mortgage for it.

  21. “I would love, love, LOVE not to be tied down to this particular area due to my career”

    If your near term goal is to be somewhere else, you should not buy a SFH or a multi unit rental. Both can slow you down. Save your money and work on getting to the area you want to base yourself in for decades to come. That should be your 2017 goal.

    If you were in some distant city, would your current location be the place you want to have rental units? If not, don’t do. When you move the cost of running the units goes up (you will need a local property manager) and the return goes down. If you don’t plan on keeping the rental for at least a decade, you might want to rethink.

    If you find the right job in the right area, who needs the hassle of a SFH disposition to complicate things. It’s real easy to exit an apartment (worse case is the remaining months on the lease). The need to sell a SFH at the wrong time can be painful.

    Want more space on a budget…keep an eye on Craigslist for a garage apartment or other situation where a homeowner is renting a single unit. You are probably their ‘dream’ tenant and likely the rent will be well below market.

    • I don’t know where I want to settle down full time after achieving FI. However, the rental market here is too good to pass up, especially as it will accelerate my path to FI. Regardless of where I end up, I will be holding on to these properties for many, many years to come. The property management fees are built into any property I’m looking at – I’ll just pay myself the fee until I’m no longer able to handle the day to day operations. Thanks for commenting!

  22. I’m a 35-yr old real estate investor who started investing 5 years ago. My only regret is that I didn’t start 5 years before that. I’m not exactly at FI yet, but I quit my job two years ago to go back to school and have decided to not get a job post graduation (my wife doesn’t work and stopped working five years ago…I never earned more than $50k/year and hadn’t saved a dime until 5-years ago). There have been some stressful months, but I do see the FI-light at the end of the tunnel.

    Buy the small multi (four or fewer units; you can still use VA loans). You’ll get experience landlording, and if you buy it right, you could even hand management off to someone else while earning passive income. There are too many benefits for real estate investing, especially when someone else is paying off your mortgage!

    Good luck!

  23. As a former property manager (40 unit building), I suggest working for someone else as a property manager before purchasing a rental. Everyone, in the first year or two on a job, makes mistakes. I had a good mentor (building owner) who helped my wife and I minimize mistakes, maximize cash flow, and clarify what our skills allowed us to do (and not do). Even with a building of this size, we treated this as a side hustle. We made mistakes, the building owner provided excellent support and training, and we *did not* have to pay out of pocket for our mistakes. Owning rentals can work well, allowing someone else to train you makes for a much lower stress entry point.

    • Thanks for commenting Karl! I agree, practicing on someone else’s rentals is a great way to get experience. I don’t know of anyone I can do that with in town yet, but I do have several mentors to bounce questions and ideas off if I get into a rut.

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