What Type Of Investment Property Should I Buy? Single Family Home, Condo, or Multi-Unit

Amazing Property Overlooking The Ocean

Buy property for lifestyle

For years, I sort of regretted buying a single family home in San Francisco instead of a multi-unit property.

Even though the idea was to grow into this four bedroom home, it felt wasteful during the meantime with only the two of us. So I finally decided to rent out the ground floor bedroom to a middle school teacher for below market rent. I’ve always had a soft spot for teachers, and it felt good helping someone who made less than $36,000 a year find a place in a good neighborhood within walking distance from work.

With the money I spent on buying the house in 2004/2005, I could have bought a two-unit building with a 1,300 sqft, 2/1.5 apartment upstairs and a similar size 2/1.5 apartment downstairs. I could have lived in one unit and rented out the other unit for maximum efficiency and profits, perhaps to the tune of an extra $150,000 – $300,000 over 10 years. Furthermore, having smaller units would provide more flexibility to accept new job opportunities – like the large offer in NYC I turned down – because of my perception at the time that it would be easier to rent out a 2/1.5 condo vs. a 4/3.5 SFH.

Then I rented out my whole house and had a change of heart.

Property Sellers: Only Accept All Cash Offers To Maximize Profits And Happiness

Mountain Of Cash

Skylar And Walter’s Mountain Of Cash

Almost every Sunday I go for a walk, jog, or hike around a neighborhood to check out open houses, speak to Realtors, get some exercise, and find inspiration for interior design. Open house hunting is seriously my new favorite free past-time. My previous favorite past-time was test driving new cars at various dealerships. What a blast that costs nothing!

I went to see a particular condo in Pacific Heights, San Francisco the other day because it was a close comp to one of my rentals in the same building. This particular property was only a one bedroom compared to my 2/2, but at 610 square feet it had a nice southern facing deck and private parking. The asking price? $690,000.

The open house was absolutely packed with couples under 35 years old as well as many retirees. Who knew one bedrooms were so popular?

Clarifying The $250,000 / $500,000 Tax-Free Home Sale Profit Rule

Tax Free Profits For Homeowners

Who doesn’t love free money?

The Financial Samurai community rocks. There’s just so much collective knowledge from each of you that ensures the content published here (posts and comments) is as accurate and helpful as possible. As the conductor of the site, it’s my job to highlight as much good as possible.

In the post, Buy Real Estate For Capital Appreciation, Rental Income, or Lifestyle, I responded to one reader by mentioning potentially moving back into his rental for two years in order to take advantage of the $250,000 in tax free profits for a single person, or $500,000 in tax free profits for a married couple if he/they then sell within five years of moving back in.

Here’s a great response from reader, Yetisaurus,

Invest In Real Estate For Capital Appreciation, Rental Income, Or Lifestyle?

Park View PropertyDespite real estate ranking second to last in my Passive Income Rankings, don’t worry real estate fans, real estate still is my favorite asset class to build wealth.

One of the reasons why I love real estate is because of the utility it provides. I don’t buy real estate for rental income or capital appreciation. I buy real estate for improving my lifestyle first. If the property so happens to appreciate in value while I enjoy the place over the years, fantastic. If not, it doesn’t matter because I’ve derived tremendous satisfaction from all the property brings: location, view, amenities, and memories. Capital appreciation is just a bonus.

Money earned is best spent on improving your lifestyle. It may be fiscally prudent to hoard as much cash as possible for a rainy day. You might grow your wealth faster by buying multiple rental properties while you rent a piece of crap place to save money. But I find that to be a waste. There has to be a better balance when it comes to spending money. If you can spend money on an asset class that provides a better lifestyle and a chance for capital appreciation and rental income, you’re hitting triples and home runs!

At What Cost Is Net Worth Diversification Worth It?

Net Worth DiversificationThe following is a guest post from Chris, a fella I met while stranded in Frankfurt, en route home from my business trip to Switzerland and Mallorca to do more research on the happiest countries in the world. Chris has a dilemma and could use the community’s help! – Sam

It was early evening when the airplane broke so the airline had to put up all of the passengers in a local hotel – to make matters challenging we were unable to get our checked luggage and had to survive on the contents of our carry-on bags. Upon entering the lobby I quickly noted that the hotel check-in line was 17 passengers deep so I decided to “wait” in the hotel bar (which was oddly empty) while my fellow, disgruntled travelers begged for rooms. Another fellow passenger noted the length of the queue and opted for the bar seat right next to me.

My bar partner and I got to drinking, laughing, and chatting about possibly catching a cab into town to procure clean under-garments – I don’t recall how long we sat at the bar, the check-in line was non-existent by the time we got room keys, my decision-making was “gin and tonic clouded” and I was happy that I chose to spend the time making a new friend instead of wasting time in a check-in line. My bar partner was Sam, he told me about his FS journey and I’ve been a regular visitor to the FS site since.

Does Remodeling Pay Off? Probably Not!

Property Renovation

Manhattan Brownstone Living Room

In “How To Make A Lot Of Money In Real Estate: Focus On Expansion,” one of the questions was on whether remodeling really recoups the cost and provides such a large return.

One of the biggest fallacies homeowners have is thinking whatever they spend on remodeling will automatically bring them great returns when it comes time to sell. I used to think this way as well until I started remodeling and property expanding myself.

Let’s be clear. Almost all property remodeling does not recoup the cost spent remodeling based on national averages. Only in super expensive cities does remodeling sometimes bring in extra value to a sale because time is more valuable to higher income buyers. In such cases, home buyers in places like San Francisco, London, or New York may be willing to pay a premium to avoid the hassle of remodeling.

In order to create more value, remodeling (renovation) must include expansion. Do not confuse remodeling with expansion!

How To Make Lots Of Money In Real Estate: Focus On Expansion

Remodeling and Expanding

Building The FS Hot Tub!

In 2014, I bought a fixer for about $714 / square a square foot in the Golden Gate Heights neighborhood of San Francisco. Nobody really knows where the neighborhood is, and that’s just the way I like it because everybody eventually will! Golden Gate Heights is just several blocks west of UCSF and has homes facing the Pacific Ocean.

Real estate is my favorite asset class to build wealth because it is tangible, inflates with inflation, has preferential tax benefits, and provides an income stream if rented out. When I buy real estate, I’m the CEO of the property. When I buy a stock, I’ve got to trust the CEO and his or her management team to execute. Sometimes the CEO is great, sometimes the CEO sucks wind, yet still gets a multi-million dollar exit package that makes me sick.

Nobody cares more about your money than you. Hence, the goal for wealth builders is to own investments where you can better control the outcome. And if you can’t own investments that you control, let someone you trust manage your money if you don’t have confidence in managing your money yourself. I trust myself to work harder and scrutinize expenses and revenue more than anybody. My bottleneck is time.

In this post, I’d like to point out a very important rule before buying any single family home. If you follow this rule, I’m confident with the right execution, you will be able to make far more money than if you didn’t.