Buy first home or buy investment property?

23 Replies

I'm really new to RE investing. I graduated college three years ago but haven't bought a home yet, still living at an apartment. I want to get into RE investing, but don't know if I should buy my first home for myself and wait to invest, or just go ahead and invest. Also, if I do invest first, will I have a problem when I want to buy my first home for me to live in? I am pre-approved and am ready to go to start investing OR buy a home for myself, but I don't know which path to take first. Any help?

I don't mean to be Socratic, but all I have are questions for you.

Are you married? Are you in a serious relationship?

Is having an additional source of income important to you right now? If it is, how much do you want?

Are you willing to work with partners?

What area would you buy your home in?

What area would you buy your investment property in?

Now I can give you the "what I would do" take.

If I was three years out of college and had a little cash I would invest in real estate before I considered buying my own home. My house would be an immediate liability but my investment property would be an asset. I would buy as many cash flowing assets as possible or do activities in real estate investing that would produce cash so I could do whatever I wanted down the road.

You have your whole life to own your own home, why not invest now and learn, learn, learn so when you do buy your home you will buy right.

Hey Rick, thanks for your reply! Here are the answers to your questions.

Are you married? Are you in a serious relationship?

Not married, but got engaged in December and planning on getting married in June 2015.

Is having an additional source of income important to you right now? If it is, how much do you want?

I want an additional source of income to eventually replace my current one. I have set my 2014 cash flow goal for at least $7k, but would eventually in the future want a cash flow of $50k. I'm really doing well with my finances, but I don't see myself working for 40 years at a job that doesn't have a huge margin of growth (I'm a teacher).

Are you willing to work with partners?

Yes! Willing to work with partners if it is going to help me with my goals.

What area would you buy your home in?

I would buy my home in San Antonio, TX and invest in the same place. I'm trying to relocate and live over there permanently.

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Have you considered buying a multi-family? You could buy a 2-4 unit and get both a primary residence and an investment property. I don't know what your budget is but chances are you could live pretty much rent free in a duplex, or could live for free with some decent cashflow in a 3-4 unit.

Maverick has good advice. Buy a duplex and live in one side and rent out the other. But before you do anything, you need to get out of consumer debt, such as student loans, credit cards, car payments, etc... Next thing is sit down and talk with your bride to be. Where is she at in all of this? Does she want to be a landlord as well? How is she going to feel living in a duplex? I can almost guarantee you that after you're married a year or 2, the duplex thing isn't going to fly with her, she'll be wanting a house and to start making babies. The point I'm trying to make is that you're still young. You have your entire life ahead of you, young men (myself included years ago) make decisions based upon emotion without thinking things through. Sit down and have an honest conversation with your fiancée first about where you want YOUR lives to go.

Roy is dead on. Invest first, start getting your passive income flowing in. Tons of tax right offs that will lower your 2014 taxes next year too! Buying a house is the old dream and one you can achieve down the road but will not build your wealth. Owning a house with or without a mortgage is ALWAYS a liability because it takes money out of your pocket every month. Build you wealth one investment property at a time. The duplex idea is often used as well. Be patient, invest as often as you possibly can and you'll soon find yourself ahead of the game in a few short years.

@Aroldo Villarreal I was in a similar position as you; at the crossroads, not knowing if I should invest or just buy.

I ended up doing exactly what @Brian Mathews said. Got a duplex through FHA, lived on one side virtually rent free, saved saved saved, and after 6 months moved out and filled my side with a tenant = awesome cash flow from 2 tenants combined.

Just think what matters most to you at this point in your life, and make a solid decision. Don't postpone it if you really do want to delve into the REI world, or in the blink of an eye it will be years down the line, and you'll be wishing you did at a younger age.

Brian, I don't have debt besides my about 9k of student loans. I paid off my truck 2 years early so that I didn't have that payment. I am going to start looking for a multifamily unit like Maverick said. It seems that many people on here agree on the fact that buying a home is not that much of a priority anymore these days, and it makes sense. That can wait, just gotta get my fiance to see from my point of view. Annette, yes, I hear that a ton as well that a home is a liability.

I'm not sure I agree with Annette and Rick. I don't think throwing money away to rent living in an apartment is such a wise idea while you own a rental. I'm sorry. I can't find the logic that tossing $1000 a month to an apartment complex in rental is smart in any way. Unless you can't afford a house and the repairs that go along with it. I get a tax deduction on my interest paid on my personal home every year. How is owning a house you live in any different than owning a house you rent out? The net effect is still the same. You are paying down a mortgage and creating an asset or a liability depending on the perspective that you look at it from. You can sell your house and if you have equity, make a tax free profit. If you have to sell your rental, you pay taxes unless you reinvest in another rental.

@Aroldo Villarreal

I put the other post at the same time you did yours. So you want to get cashflow off a rental, so you can hand that money to an apartment or another landlord? Rather than put it towards your own home? I'm sorry, I don't see the logic in that. Everytime you make a rent payment, you're tossing money out the door.

@Brian Mathews

I've been watching many Robert Kiyosaki videos and am about to read his "Rich Dad, Poor Dad" book, and he keeps talking about liabilities an assets. I understand the difference, but he keeps saying to avoid liabilities. I know a house and a car are liabilities rather than assets, but I would think it's inevitable to get those, or am I wrong? I also think that I'd rather pay for a home that is mine rather than pay rent, but there's so many different opinions out there that it gets a little hard to decide which is best. But in my opinion, I would agree with you. Like I said, I'm not experienced, so it is difficult to make a choice when many experienced investors have different points of view. I am willing to invest about $50k, but don't really know if that's enough or not to get me on track to achieving my goals.

Also, can some explain to me how the @someone's name thing works? I tried before and am trying again, but it doesn't turn into a link!

@Aroldo Villarreal

You other option is to buy a house. Rent out the rooms to roommates , use that money as future down payments! We had a roommate our first year of marriage because it allowed us to save a ton of money. It ended up paying for our first home and half of our first investment. It comes down to what are you willing to put up with to get started.

If you area support them 2-4 unit buildings are also options with you renting out the other unit.

We rented our first 1.5 years of marriage until we felt we were ready and stable. In the last 2.5 years we have bought 4 houses with another closing in May.

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@Aroldo Villarreal

You're doing a good thing. Reading books and getting involved on here asking questions. However you invest, whether in the stock market or real estate or both. NEVER invest in something you don't understand or are comfortable with. You'll find people who will try to rush you into something sometimes by making you feel unintelligent or unsophisticated. When they do that. Tell them to take a flying leap. I might deserve to be told that as well from my previous posts, that is for you to decide. You don't need people like that around you. It's your money, not theirs. A person who cares about you and your well being will help you out and answer any questions you have without making you feel small. As I mentioned before, you are a young man. And young men are impulsive, as I was and sometimes don't make wise decisions. So take your time, you are still young and have an entire lifetime of mistakes to make still. Consult your fiancée, she will make or break you. How is New Braunfels? I lived there in the mid 90s. Loved it there, I used to ride my bike to Gruene everyday. The only thing that irritated me a little was tourists coming to Schlitterbahn. But the girls in bikini's sure made up for it.

I'm in the same position as Aroldo. I also don't see the sense in renting any longer and plan to buy an owner occupied home. Multi families aren't common in my area and no deals worth having are showing up. So I'm considering one of two ways, either find a highly discounted small house my fiancee and I can live in for two or so years, while paying off her student loans. That way I can move shortly after and rent it out. Or the other option to purchase a larger home but with an income suite to rent out to either off set the mortgage or reduce it considerably.

Also @Aroldo Villarreal I'm not sure about property values in your area, but with an fha loan (and a 3% down payment) you can get into the property with very little cash investment, tho you would have to live in it for two years, or increase equity past 80% or so and refi for a traditional . And if you find enough of a deal, add sweat equity to increase value, by time you're ready to move/invest more, you could have a great long term investment. Bottom line I would approach my first "home" like it's my first investment, which it will be :)

@Brian Mathews

Brian, thanks for the advice. I will be following your advice on this one. New Braunfels is great! I've lived here for about a year now since I moved from San Marcos and it is a beautiful small town, though it's grown a ton since the 90's. We ride our bikes to Gruene too, but now the traffic is getting bad because of construction. The thing that HASN'T changed are the bikini girls, those are abundant! Makes me wish good real estate deals were like them, haha.

@Troy VanMaanen

Do I qualify for an FHA loan if I already have an investment property? For example, let's say I buy a rental but still have a couple of months left in my current lease contract. Since I have a rental already and I would want to buy a home, would that be a problem? I also hear there's some kind of program to help first time home buyers who are just married or something like that. Have you heard about that?

To my understanding, (I'm new as well), I think you can only have one outstanding fha loan AND it must be owner occupied. Meaning you could live in the fha financed property until you could refinance or pay it off. As far as owning another property, financed another way, seems legitimate; again only regurgitating what I've read as I have yet to "practice what I preach"


Welcome to San Antonio. We are novices too but closing on our second rental this month. I see sound reasoning on both sides of this one. My first house became my rental but definitely wasn't bought with the eye of an investor. It cash flows only because I have had it for so long. I would warn you to be careful with some of the programs for teachers and firefighters etc such as the "good neighbor next door" (if it still exists) program which can get you into a house cheaply but will tie your hands from buying other properties for three years. This is according to a guy at work who is pacing while he waits through this time out so he can get into the game.

Feel free to PM me if you need any info regarding San Antonio. We are investing in the northwest area in Northside school district.

Good luck!

Originally posted by @Brian Mathews :
I'm not sure I agree with Annette and Rick. I don't think throwing money away to rent living in an apartment is such a wise idea while you own a rental. I'm sorry. I can't find the logic that tossing $1000 a month to an apartment complex in rental is smart in any way. ...

I completely agree. I can't comprehend how a real estate investor could buy a property to rent to others while they're renting a property to live in. What side of the equation do you want to be on? The buyer's or the renter's? I ALWAYS want to be the buyer.

Others have touched on it, but I'd 1st make certain your fiance is on board. You both have to agree on the strategy and sacrifices that will be needed to make it all work out long term (in a lot of ways). 2nd, if I were you, I'd buy a distressed multi-family property. Fix up and rent out the other unit(s) as quickly as possible, then fix up the side you're living in. Some people don't like living in a construction zone, but you'd have multiple ways of building equity and multiple exit strategies. Live there at least two years and if you sell within 5 and you can put everything in your pocket tax free up to $500,000 for the next property.

Lots of moving parts and lot of things to take into consideration.

The whole multi unit place is a good route to look into. The keys are if they are common in the area, do you and your fiancée want to live in one for at least a year and probably should be more to make the numbers work out, will you save more on rent than if you rented both sides and paid rent someplace else?

First couple of things are personal but are very critical (Which has been point out a lot already). The other one isn't as clear cut.

Lets say you can buy a duplex with two 3/2 units that rent for $1200 each. But you and your fiancée would be perfectly happy in a 2/1 for now that you can rent for $850. Well then you are missing out on a net gain of $350/month.

However on the other side of the coin you can get into the place a lot cheaper if you get an owner occupant loan like an FHA. If this duplex costs $200K then with a conventional loan you will be putting at least $40K down on it where with an FHA it will be like $7K. That is obviously a huge difference.

Even just going to single family owner occupant route is not the demon that some are making it out to be. You will get into it for the lowest down payments, you will get the best interest rates, it will be the easiest to sell, if you do sell you get any gain up to $250K/$500K (depending on if you buy it before or after getting married) totally tax free, it will be easier to refinance than a rental and you can easily get a line of credit on it (not that easy on rentals). If you buy it RIGHT (as in like you would an investment property) you can leverage the advantages of your home a lot.

For example we bought our current home after renting for about 19 months (after moving from a previous home we turned to a rental) at a big discount. We were renting because to be where we wanted to would have cost way more than we could afford and monthly payments would have been 50-100% than rent. During this time we bought 2 rental units in a solid city 40 miles away at about 20% the cost we would have had to pay for the place we rented and each brought in about 70% of what we were paying in rent. I kept my eye open and pounced on an awesome deal in town that we got way under value then put some forced appreciation onto. We did increase our cost of living about 20% at the time getting into the place but it was much bigger and nicer, and we have lived here longer than any other place we have been in. Currently we pay about 80% of what rent would be in the similar smaller not as nice units that we had rented before. I also have a nice fat $80K HELOC that I use to help fund investment purchases as needed just by going and asking for a check then paying a modest 2.25% interest only payment while the money is out (nothing when it isn't). Yeah owning your home the right way can be awesome!

If you are a youth and hoping to buy another home to live in. While a great many people hold up until after they've purchased their first or second home to start putting resources into real estate property, you could begin much sooner than you might suspect. I used to buy home and rent out the rooms and utilize that money for down payments.