First Purchase: Buy or Invest Advice?

16 Replies

 For some background, I am single in my early 30's and interested in making my first purchase or investment into the new year. 

Many of my friends (married) are buying their first homes, and I want to start building my future as well. The San Diego market has appreciated dramatically where home prices are 50% higher than they were just in March of 2021. So I am trying to decide what makes the most sense for me and my situation.

Is it a better option to obtain your first house to eliminate rent and build equity in your own home first? Or is it better to build an investment portfolio and look at a house down the road? Ultimately, I don't NEED a house/condo right now, although I do want one and a place I can call home.

Ideally, I'd like to invest in my local area and find a duplex that I can owner-occupy, but again the market down here is so crazy. I'm not even sure I can do that, let alone a SFH for purchase.

I am thinking about investing OOS to build my portfolio, and then purchase.. But investing OOS intimidates me by not understanding the local area as much and relying on obtaining quality agents, contractors, and potentially property management.

Does anyone have any sound advice for the best step in securing a long-term financial future for someone in my position given my location/circumstances (San Diego,CA)?

Hi @Bryan Kurtz,

This is a great question and I think you will ultimately find there really is no right or wrong answer. I'll offer my thoughts as a real estate agent here in San Diego with a few out of state rentals. If you are considering using your primary residence as a form of investing (house hack, flip, BRRRR etc.) then I would find something here. You eliminate paying someone else's mortgage and start paying yourself through your principal payments. What is the opportunity cost if you pay rent for another year or two? Since its your primary residence you will get better loan terms as well. Prices are up everywhere and as you mentioned there is additional risk that comes with investing out of state. No one knows what the future will bring but if you look at the increase in housing prices for San Diego and compare that to the best case scenario cash flow for an out of state rental San Diego appreciation is going to come out on top by a long shot. You could also try a hybrid approach and do both. Best of luck!

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Bryan - for what my two cents worth, and I am by no means an expert, I would say invest in San Diego if you can make it work. 

You're right - Home values have skyrocketed in the past year and a half and with Big Tech and Pharmacy boom starting to take over and relocate here I don't see it slowing down anytime soon. These companies are paying their employees $$$$ (Think SF Bay Area few years ago). Factor that in with everything else San Diego already has to offer. 

I got my first property Oct. 2020 and watched it grow 35 percent YTD. I stretched every dollar I had with my friend to make it work cause the idea of paying someone's mortgage for them killed us. 11 Months later, we just closed on our 2nd place and are renting out our first property cash flow positive. 

Again just my thoughts and current situation. Find a realtor who will go above and beyond to make your offer stand out against all the incoming cash only offers. Scour the MLS and don't be afraid to attack when you find one. If I can make it work you definitely can!

Best of luck and hope it all works out for you. 

Hey Bryan, 

I'm currently in the same boat as you, being patient and looking for where I should purchase my first property either in SD or OOS. My advice would be to first find a lender and get pre-approved. Once you are pre-approved you will have a better idea on your affordability based on price point and how much of a down payment you're comfortable paying.

Once you have that information, you can better understand if you can afford to BRRRR or should do an FHA loan on a multifamily property instead. Personally, I haven't been able to find many multifamily properties left on the market in SD that are reasonable prices. However, the numbers may work out for you.

Any strategy is going to help secure your long-term financial success as long as the numbers in the deal work for you! Don't let analysis keep you in paralysis! Start getting in touch with real estate agents that can help you find deals, you can also interview several agents OOS and select the one you are most confident with!

@Mark Frattini Thanks for the helpful info. Yes, the appreciation here has been nuts. I wanted to buy last year in March but was looking to do a career transition, so decided to wait. That decision has been paining me ever since, but hindsight is always 20/20.

Originally posted by @Bryan Kurtz:

@Ben Capone Thanks for the helpful reply and encouragement. Did you get into SFH rentals or duplexs/Multi-family? I also agree that I would prefer to be in the area of my rentals

Given my current situation, SFH was better and more feasible for what I was looking to accomplish. I do eventually want to break into the multi-family market, but likely later down the line when I have more refined processes and systems in place.

One thing to factor is when you are collecting rent from OOS properties, that income goes towards the rent of your home.  By house hacking, the income from the rent goes towards your mortgage, which is ultimately your net worth.

Either option can work but you just need to put perspective on what the results do.  In an ideal situation, you would house hack and then invest.  But that isn't an option for everyone.

You could also look further north in San Diego such as Lemon Grove.  A while back there were large homes with low bedroom counts at affordable prices.  You could easily add 1-2 bedrooms within the existing square footage, maximizing your house hack and later on potentially rent out via Section 8 where the government pays you based on the bedroom count, not necessarily based on floor plan.

Hey Bryan,

Have you thought of getting into STRs? I know you say going outside areas you do not understand is scary which I definitely understand! However, numbers don't lie. I would start researching STR income numbers for The Smoky Mountains, Blue Ridge Mountains, and Gulf Shores to start with. @Avery Carl's team specializes in STRs and can actually help you decide which areas may be profitable for your budget as well as educate you on the areas. However, it is good to visit the area you invest in so you can recommend places to eat, fun things to do, etc. It helps the guests feel more connected and therefore, better reviews. Hope this helps! 

I am in the same position as you, I am 31 years old and single which allows for flexibility in a living situation. It is crazy expensive here with no signs of slowing down (SD appreciates 6.94% per year on average which is higher than the majority of markets around the country).

I personally like the idea of purchasing a low down payment personal residence as a first investment, that way you have more control of what happens. If you are lacking capital or the ability to qualify, you can always partner up with someone and go 50/50. I just bought a SFH in La Mesa and partnered up on a 5% down conventional loan purchase in which we are renting out the extra rooms to tenants (I am currently paying $400 for my mortgage payment). Since you are single and able to go the roommate route, I would take advantage of that. Once you buy your first house hack and let the market do it's thing, you can take out a HELOC or refinance and leverage your property to buy more properties elsewhere.

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The goal sounds like an investment property. So do you want to scale faster or are you ok with slowly building up your portfolio?

Two scenarios with the goal of investment property:

  1. Invest out of state. Become a better investor due to the increased skillset and team needed. Buy lower cost properties with higher interest rates as investment property loans are used. Pick your market and thus higher options.
  2. Invest in a primary residence, with goal of being a investment property. Rent out the rooms to increase ability to save and purchase other properties with increased cashflow. Take advantage of primary residence loan rates. Know your market as it's local and rely on your knowledge but limited options due to price potentially.

That's it. Both are valid. Its up to you. 1st scenario will arguably have you learn/scale faster while 2nd scenario is the more typical method for many.

@Bryan Kurtz

Get pre approved for a primary so you’ll know how much you can afford and how much cash you need to close.

Getting a primary will give you a good lesson on what it takes to keep up with the house, e.g. things that break and/or how long things last.

Remember that money is made when you buy. When looking for your primary, look for properties with value add so you can force appreciation by fixing stuff up or adding an extra bathroom/bedroom.

Wish you the best of luck.

@Bryan Kurtz For new investors, buying locally, where ever that may be is the best way to start. House-Hacking specifically is the easiest and most effective ways to start since you can take advantage of low down payment options and lower rates to buy your first place, occupy it for a year, rinse and repeat. You can put as little as 0%-5% down on a condo or single family home (depending on VA, FHA or conventional), live in one room and rent out the other rooms or buy a duplex with 3.5% down live in one unit and rent out second unit. Everyone is paying for a mortgage, either their own mortgage or someone else's mortgage.

I wouldn't personally try to time the market even though everyone always tries to, I remember many have been saying the market is going to crash for the past 5 consecutive years, haha...I personally purchased another investment earlier this year and in escrow currently buying another investment  for myself here in San Diego.  If you are a long term buy/hold investor then it doesn't matter what happens in the next year or two.  Once you get in the market with the first property, it definitely becomes easier.