Purchase investment property or primary residence first?

Question

I just sold my primary residence and have a good amount of money to start investing in other properties.  Should I wait until I purchase a new primary residence before an investment property? I listened to the real estate rookie podcast where they talked about this.  Just trying to get other opinions.  Thank you!

John Gach · Answer

@Tyler Fox

Definitely depends on what you’re needs are as far as living conditions you’re ok with.

Starting off with a duplex or even a tri or 4unit, you can live in it, and probably live for free.

Then you can buy another down the road, and either move into the new one so you can have a smaller down payment, and start cashflowing the first property.

If you start off with a single family home, and plan to live in it and continue living in it as you buy rentals, that would be harder as you need 20% down for a non-owner occupied rental, and also they’ll probably look at your debt to income ratio, which the single family home would be against your debt to income ratio.

I did personally start out with having my own home and buying rentals, which is more expensive but I like to not have tenants living above or below me.  I also run a business out of my house so that wouldn’t be good for a tenant potentially.

Danielle Jackson · Answer

Have you considered a duplex? A property where you can achieve both - making it home, and renting out the other side? A lot of variables prior to making any decision (markets, capital for down payments, reserves, etc), but so many investors get started with this type of structure.

Chace Fraser · Answer

@Tyler Fox why not have your cake and eat it too?!?!? Of course it really depends on your situation and what other people may or may not be involved in the decision (significant other for example).

@John Gach's advice of "If you start off with a single family home, and plan to live in it and continue living in it as you buy rentals, that would be harder as you need 20% down for a non-owner occupied rental, and also they’ll probably look at your debt to income ratio, which the single family home would be against your debt to income ratio." IS OUTSTANDING!!!

House hacking is a great way to get into or continue real estate investing. The reason it's so powerful is that you will be buying a property to live in (primary residence) that will also be an investment. Since you will be living in it, the bank will see it as a primary residence and that's the type of loan you will apply for. Because of this, you will be able to get a mortgage with low down payment options (FHA 3.5 percent) and better interest rates. Also, if it’s a 2-4 unit multi-family property, the bank will look at how much the unit(s) you will not be living rent for and apply that to your income. This will help you qualify for money enabling you to purchase a larger property.

Trevor Fleck · Answer

@Tyler Fox depending on your situation and what you're comfortable with (as well as if your market is a decent area for investment) I'd consider one of the following:

• Purchase a single family home and rent out unoccupied rooms or Airbnb them
• Purchase a single family home that could make a good LTR and then move in a year or two
• Purchase a multi-family, live in one part, rent out the rest

It's really what you're comfortable with in some ways. For example, I would have loved to house hack with a duplex, but my wife wasn't having it. So we ended up buying a house but rented out one of our rooms through Airbnb and that paid the mortgage most months. So you've got some great options.

Reid Chauvin · Answer

Short answer is, 'it depends'...You definitely get the most advantageous financing (lowest down payment and lowest rates) for a primary residence purchase. I'm a proponent of taking advantage of that, while being cognizant of whether or not the property will be a good investment when you move out. There are a lot of other variables here though...

Purchase investment property or primary residence first?

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