First Real Estate Investment

[David Fals]

I am looking to purchase Real Estate. I have about 75k in HYSA and an Investment account combined. I also got 40k in my 401k.

I was thinking, should I invest in RE or continue to save? I recently got preapproved for $450k, and I own a primary residence (a condo that appreciated from $250-310k). I’m looking at PA, DE, CT, or MD, for multifamily homes (if possible). I'm based in NJ it's so expensive here. I chose those locations because I would like to drive to the property.

Is it worth it with less than $100k+ for a downpayment, plus closing cost, vacancy, renovations, etc Also, that's all my savings, which means my Emergency fund will be depleted. However, I have my job and side hustle still bringing in income. I'm so confused. 

How do you guys make that first investment?

[David Fals]

Wondering if anyone could help out with an advice 

[Jonathan Greene]

PA would be a good option because it's an easy drive, affordable, and there are a lot of renters. If you do Philly, you have to know the blocks, every block, because the change from block to block is drastic. Taxes are low in Philly. You could also go a little farther to Stroudsburg. College rentals work in both, but not always a great option for a first-time landlord. 450k can get you a small multi or you could row house or similar for less and practice as a landlord

[Nicholas L.]

@David Fals

definitely do not exhaust your savings.  it sounds like you need to keep saving.  don't believe the hype on the Internet.  most of us buy property with... money.  from our W2s.

are you in a position to house hack?  that would lower your down payment requirements - you could keep your primary as a rental, and move into a househack.  but if you're not in such a position, you're not.

[Paige B.]

Could you rent out your primary residence and buy another primary home to move into? You can buy a primary residence with only 3.5-5% down. I would avoid pulling from investment accounts. Even if you buy something that needs slight renovations, you can do them while living there, and then in a year or 2, you can rent that one and have 2 units in your portfolio, and buy another primary residence to move into with 3.5-5% down. Repeat this process and you can easily build up a portfolio. 

[David Fals]

Quote from @Jonathan Greene:

PA would be a good option because it's an easy drive, affordable, and there are a lot of renters. If you do Philly, you have to know the blocks, every block, because the change from block to block is drastic. Taxes are low in Philly. You could also go a little farther to Stroudsburg. College rentals work in both, but not always a great option for a first-time landlord. 450k can get you a small multi or you could row house or similar for less and practice as a landlord

Thank you for your advice. Appreciate

[David Fals]

Quote from @Nicholas L.:

@David Fals

definitely do not exhaust your savings.  it sounds like you need to keep saving.  don't believe the hype on the Internet.  most of us buy property with... money.  from our W2s.

are you in a position to house hack?  that would lower your down payment requirements - you could keep your primary as a rental, and move into a househack.  but if you're not in such a position, you're not.

I thought about house hacking, but where we are does not seem like my wife would want to move again and then we would have to sell. 
Unfortunately, HOA stopped new owners from renting due to a flaw in the bylaws that allowed so many renters than owner-occupied.

I think the goal would be to continue saving. I thought I was ready, but seems I don't have enough cash yet. 

[David Fals]

Quote from @Paige B.:

Could you rent out your primary residence and buy another primary home to move into? You can buy a primary residence with only 3.5-5% down. I would avoid pulling from investment accounts. Even if you buy something that needs slight renovations, you can do them while living there, and then in a year or 2, you can rent that one and have 2 units in your portfolio, and buy another primary residence to move into with 3.5-5% down. Repeat this process and you can easily build up a portfolio. 

Thank you! Househack sounds like a great plan, it's always been on my mind. However, I can't keep the current residence, HOA stopped new owners from renting due to a flaw in the bylaws that allowed so many renters than owner-occupied. I dislike HOAs 😭

[Jacopo Iasiello]

Hey David, I can understand your dilemma. Making that first investment in real estate can feel like a big leap, especially when you're considering factors like your savings, potential risks, and the market conditions. Let's break it down: Assess Your Financial Situation, Market Research, 
Evaluate Your Budget, Risk Management, Consult Professionals. 
Take your time to weigh the pros and cons, and don't hesitate to seek expert advice along the way. Good luck!

[Mathius Gazi]

Quote from @Paige B.:

Could you rent out your primary residence and buy another primary home to move into? You can buy a primary residence with only 3.5-5% down. I would avoid pulling from investment accounts. Even if you buy something that needs slight renovations, you can do them while living there, and then in a year or 2, you can rent that one and have 2 units in your portfolio, and buy another primary residence to move into with 3.5-5% down. Repeat this process and you can easily build up a portfolio. 

I really agree with this answer. If you rent this condo out and it brings in some positive cashflow, and then you move into a multifamily say 4 unit with an FHA or even conventional loan, you'll probably be spending about $40k-$50k all in on a high quality property. If you do some value add, you'll gain on sale plus have the benefit of having lived there for free for a little as the tenants paid your mortgage, and, there is no carrying cost while you do repairs or improvements - it's your primary home, so you're not losing anything by carrying that mortgage. Maybe this is enticing for you. I know some people are not super keen on just getting up and moving somewhere strictly for financial gains, and it's easier said than done.