Buy a Primary Residence or Investment Property first? DTI

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Buy a Primary Residence or Investment Property first? DTI

Rahnesha White
New to Real Estate · Anaheim, CA · Member since 2020 · 29 posts · 7 votes

I currently live in a high cost market ( California) and I for sure want to buy a primary residence here to house hack in the near future. However, I also want to buy an investment property (Small MTF 2-4 LTR) in the midwest due to the lower purchase prices so I would be able to get started sooner. In terms of my DTI would buying an investment property first make it harder to qualify for financing on a primary residence later because I will now have the debt from the investment property? Im wondering if getting a primary residence first would make more sense since I currently have no debt and from my understanding investment properties financing typically take into account the income of the asset versus my personal income to qualify me for the loan versus fannie mae and freddic mac( conventional loans) which would consider the debt of the investment property (DTI) in considering the whole picture? Also would creating an LLC putting the investment property into that help diminish the concern about the new debt affecting my DTI for qualifying for a primary residence?Hopefully that makes sense trying to articulate these concerns that are floating around in my head lol. Also my current rent is very low currently so there isnt necessary a rush for me to get a primary residence.

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Nate Sanow
I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
3y

DTI does and doesn't matter. There are loan types and lender types that do not look at your personal DTI as strictly as I think you think they do.

If I had to choose I’d choose something to own as a primary residence first. There is so much stuff you learn by getting one. Also the loan products available for owner occupant allow you to get a property with so much less than 20% down. It sounds like you might have it soon have access to that 20%… but if you buy a primary with an owner occupied loan, which you can do for a 3% , your 20% down should still be intact… thus allowing you to still get back to investing. Unless I’m missing part of the equation here. 

not to mention if you live in something you don’t own, it really as if you are paying 100% interest to the property owner. No portion of that monthly payment produces equity, appreciation, or the possibility of moving out and keeping the r asset and then renting the property out - but you could of course do exactly that by owning a primary first. 

Best wishes to your success.

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  • Account Closed
    Real Estate Agent · Saint Claire Shores, MI · Member since 2021 · 6 posts · 1 vote
    3y

    What about buying a 2-4 unit?   Then you could live in one unit and rent out the others. Better yet you could live in one and rent out the additional bedroom or bedrooms in your unit to roommates while renting the other units out to tenants. 

    Then later on you’ve got a nice cash flowing multi family property. 

    0Reply
  • Rahnesha White
    OP
    New to Real Estate · Anaheim, CA · Member since 2020 · 29 posts · 7 votes
    3y

    @Account Closed well that would be ideal but I cant afford a small multifamily right now in Los Angeles, California thats why im thinking of investing out of state a small MTF is going for at least 1 million here in LA,.... but I can afford a small multifamily in the midwest. In order for me to live in one unit and rent out the others I would have to move to the midwest which I don't plan on doing. It would just take me longer to save to buy in Los Angeles as a primary residence versus being able to get started now in the midwest but my DTI of buying a investment property first is my ultimate concern.

    0Reply
  • Nate Sanow
    I​nvestor & Agent · Tulsa, OK · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    DTI does and doesn't matter. There are loan types and lender types that do not look at your personal DTI as strictly as I think you think they do.

    If I had to choose I’d choose something to own as a primary residence first. There is so much stuff you learn by getting one. Also the loan products available for owner occupant allow you to get a property with so much less than 20% down. It sounds like you might have it soon have access to that 20%… but if you buy a primary with an owner occupied loan, which you can do for a 3% , your 20% down should still be intact… thus allowing you to still get back to investing. Unless I’m missing part of the equation here. 

    not to mention if you live in something you don’t own, it really as if you are paying 100% interest to the property owner. No portion of that monthly payment produces equity, appreciation, or the possibility of moving out and keeping the r asset and then renting the property out - but you could of course do exactly that by owning a primary first. 

    Best wishes to your success.

    2Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    3y

    @Rahnesha White You have to think downside risk too. Risk of a long distance multi in the midwest is SUPER high. Some people 'seem' to be doing well but many are getting killed with expenses or eking out cash flow. And one problem will seriously cut into your ability to buy the primary house hack.

    The conventional road is conventional for a reason..it works more often than not. Good luck!

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Investment property! Make your money work hard!! It won't work for you if you live in the property 

    0Reply
  • Allan Smith
    Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    Compare roi on each. Whatever your rent payment would be elsewhere, add that to rental income of a house hack for apples to apples. You'll likely find that basically not having any living costs will swing that roi heavy in house hack favor.

    you can use the same mechanics to compare a rental property to a primary residence that you don't house hack. Buying a house to live in costs a lot of money if you don't house hack it. Buying a rental is much better. Or stocks.

    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Rahnesha White:

    I currently live in a high cost market ( California) and I for sure want to buy a primary residence here to house hack in the near future. However, I also want to buy an investment property (Small MTF 2-4 LTR) in the midwest due to the lower purchase prices so I would be able to get started sooner. In terms of my DTI would buying an investment property first make it harder to qualify for financing on a primary residence later because I will now have the debt from the investment property? Im wondering if getting a primary residence first would make more sense since I currently have no debt and from my understanding investment properties financing typically take into account the income of the asset versus my personal income to qualify me for the loan versus fannie mae and freddic mac( conventional loans) which would consider the debt of the investment property (DTI) in considering the whole picture? Also would creating an LLC putting the investment property into that help diminish the concern about the new debt affecting my DTI for qualifying for a primary residence?Hopefully that makes sense trying to articulate these concerns that are floating around in my head lol. Also my current rent is very low currently so there isnt necessary a rush for me to get a primary residence.


     Some lenders require that you own a property first before you can actually buy an investment property. Although there are a few lenders that do not require it. 

    What you can do instead is buy an SFR, rent out some of the rooms, convert the garage into an ADU in an area where new businesses and opportunities are coming in.

    Buy with 5% down instead of 20-25% down on an investment property. 

    Then you can turn your primary into a rental, and buy another primary with 5% down. 

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  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    3y

    @Rahnesha White buying an investment property could help your DTI as long as it has positive cash flow.

    0Reply
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