How to Buy Your First House and Investment Property at the Same Time

If you’re a new investor or looking to get started with investing and don’t live in your first investment property I have only one question for you: why not? Since I’ve been a realtor over 25 years and a Real Estate investor for 24 years, I’ve noticed a pattern in how people typically invest in Real Estate. They’ll rent, then buy their first starter home, then sell it, then get a bigger home, and then later in life think about investing in Real Estate after they’re doing well or upon their accountant’s advice. To me this seems like most people’s biggest Real Estate investing mistake. Not that they finally did it, heck my father bought his first three investment properties when he was 72! But if you don’t want to wait that long, why not live in a cheap rental while saving for that first starter home (especially if the school district doesn’t matter) with the intention of keeping that first owner occupied home for a future rental?

The first property is the most critical and theoretically it could be one of the easiest to get, as far as financing goes. Everyone can have one FHA owner occupied loan and can purchase up to a four unit property where the lender will count a large portion of the rents on the other units as income to the buyer. This is powerful since FHA may require the least amount of cash up front (which normally gives you a higher ROI) and you can buy more property if you can count rent from the other units. For example, my first property I lived in was a duplex I bought in 1989 and I still own it today, I also cash flow out the wazoo on it! If I were to go and buy a duplex now, later in life, I would need 30-35% down plus closing costs to acquire a duplex today that’s non-owner occupied. That’s not a good use of my capital plus if you sell your first property to get rid of the debt so you can move up to your 2nd owner occupied unit, you lose your initial down payment and closing costs on the first property. Not to mention the appreciation, cash flow, and write-offs you could have by continuing to own and rent out the place!

Years before working for me and my company, an employee of mine was just out of college and had a really great job. She decided to buy a nice 3 bedroom house in a decent part of town and rent out two of the rooms to friends. So she lived almost for free right up until she got married; when her husband (an accountant no less!) told her to sell her house and move in with him. She did, and since then her decent neighborhood became a very nice one. She bought the house for $150,000 and now it’s worth $350,000. The appreciation alone is enough to put her kids through college. So how come no one ever talks about this? To date I’ve kept the first 3 properties I’ve ever lived in and they all make me money today. The only difference with investing in Real Estate this way is you make your “need” more disciplined and you only “spend” time to save a little more money to move into the next property. Before you acquire your first property try to envision your long term Real Estate goals, and see if living in your first investment property could be right for you. Chances are it'll work and you’ll be glad you did it, I know I am.