Better Investment: 1 mil house or 2 500k houses?

N

NoSoup4U

New member
If someone currently lives in a 750k house, would you advise them to:

A)  Buy a $1.2 million house in Turtle Ridge as an upgrade and rent out the current house

B)  Buy 2 600k investment properties in "lesser" areas like Westpark or Northwood and rent them out.


I imagine you would make more money with B but does this added amount outweigh the improved lifestyle of A?
 
The lower risk is with option B.  The higher in price you go, the smaller buyer and renter pool you have.  Prices around $500k seems to be the sweet spot for many buyers.
 
What are the tax implications of owning 2 investment properties vs an owner occupied house?  I know there is some rule that states if you have lived in a property for 2 out of the last 5 years you can have up to 500k in untaxed gains.  So do some people go and live in their rental properties for 2 years before they sell?  Or do they lie and just have some bills sent to their rentals to make it look like they lived there?  What about higher mortgage rates on rentals?
 
You are missing the most important question:

Do any of those homes have a 3-car garage?  ;)

Seems like A and B are almost different scenarios... A you get to upgrade but become a land lord, B you stay put and become twice a landlord.

Does B give you enough cash flow profit so that you can buy things like you live in $1.2mil TR house?
 
C) Buy 4-7 or so IE area homes (Hemet, etc). If I was depending on two homes for cash flow and one didn't make the rent one month that's 50% of my income dropping away. If 1 out of 4 of my lower priced homes doesn't, that's only 25%. Multiple lower priced homes can be resold off bit by bit if needed.

Most have 3 car garages  ;)

My .02c
 
sgip said:
C) Buy 4-7 or so IE area homes (Hemet, etc). If I was depending on two homes for cash flow and one didn't make the rent one month that's 50% of my income dropping away. If 1 out of 4 of my lower priced homes doesn't, that's only 25%. Multiple lower priced homes can be resold off bit by bit if needed.

Most have 3 car garages  ;)

My .02c
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Easy. For pure investment purposes, multiple smaller units will give you the best return and lowest risk, in terms of cash flow and capital appreciation.  Avoid condos and focus on small/starter true SFRs.
 
sgip said:
C) Buy 4-7 or so IE area homes (Hemet, etc). If I was depending on two homes for cash flow and one didn't make the rent one month that's 50% of my income dropping away. If 1 out of 4 of my lower priced homes doesn't, that's only 25%. Multiple lower priced homes can be resold off bit by bit if needed.

Most have 3 car garages  ;)

My .02c
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Wouldn't the long term appreciation of 2 Irvine properties be better than 4 properties in the IE?  Assuming a 20% down payment, I would not expect these Irvine properties to be cash flow positive right now until rents go up more in the future.  I just wanted to know what the opportunity cost would be to buying such an expensive home in TRG.  15 years down the road, am I going to be kicking myself for opting to buy a 1.2 mil home vs 2 600k rentals in the same city?
 
$1.2m can only get you 2500SF 3-level house in Fiore tract at the bottom of Turtle ridge without any views. It's not really a lifestyle upgrade. Plan B sounds better.
 
I think you are making a choice between personal happiness and financial gain, in which case it's impossible to measure the two choices objectively, since only you can determine the financial worth/opportunity cost of not living in Turtle Ridge. 

Seems to me you would be "happiest" with the purchase in Turtle Ridge.

From an investment perspective, the best choice would be whatever maximizes your return on the 1.2 mil.  Since return should count both cash flow and appreciation, sgip's choice seems reasonable. 
 
Future appreciation is unknowable. Monthly cash income is a reliable investment return, more so that possible value increases. No area is immune to continuing price drops. If you have an investment property off of Culver and Nadia Suleman's brood moves in next door, I'm sure your property value will decline. If things go sideways overseas and the FCB's stop buying, values here will also not be sustainable. Hard to say if these same risk events might replicate themselves simultaneously 4 or 5 times in varying areas in the IE.

Most people don't have most of their assets tied up in a couple of Too Big To Fail banks, but they spread risk out into smaller banks and funds. The same strategy would be practiced with my Real Estate assets if this were my decision.

My .02c

Soylent Green Is People
 
Do you need to hold your current house as an income property?  I think you should sell and enjoy TR unless you are keen on becoming a landlord.
 
rkp said:
Do you need to hold your current house as an income property?  I think you should sell and enjoy TR unless you are keen on becoming a landlord.
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I was planning on keeping my current house since now might not be the best time to sell.  I don't mind being a landlord.

I am trying to find data so I can quantify plan B being a better investment.  I would like to know how much more money I would have made.  I know there is a Fiore home that is pending for around 1.3 right now that sold new back in 9/2003 for around $970k.  I need to find some $485k homes that sold at that same time to see how much more they are worth.

Does anyone know which TRG homes sold new for around 1.2 mil?
 
Personally, I'd choose neither. I'd sell the $750k house, buy a $2m house in Newport Beach and call it a day. (But I'm biased because I have absolutely no interest whatsoever in being a landlord.)
 
traceimage said:
buy a $2m house in Newport Beach and call it a day.
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I wish I could do that.

I am in no rush to make a decision.  I still want to see what happens to prices once the Jumbo conforming limit decreases to 625k.  I doubt that prices will jump up where I get priced out any time soon.
 
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