Continue renting or buy primary

17 Replies

So I'm just starting out in Denver, and my ultimate goal is to increase my cashflow. I'm currently renting at an apartment in the Highlands for $1,300 a month and I'm not pocketing much after expenses each month. 

Basically I'm wondering if I should keep renting and use my 25K savings to invest in a rental that would (hopefully) add income. Or if it would be better to use that money as a down payment on a condo as a primary residence. 

I am finding places near capital hill that look like I can keep my expenses down around $1,000/month including HOA, taxes and insurance. I'm not convinced that I'll be able to find a rental property in the Denver market that would net $300 each month.

Any thoughts? I just want to make sure I'm not missing anything!

If you are buying a primary, I'd buy a duplex or something you can rent part of it out for increased income and reduced living expenses.

My son was renting in Virginia Beach for $1200 month, splitting it with a roommate. He convinced the roommate to rent a room if he bought, so he purchased a 3 bdrm, 2 bath house with 0 down using Virginia's VHDA program (first time homebuyer -- it helps finance their FHA down payment), and rents the room to the same roommate he's had for years, anyway. He pays less than he did at the apartment for a much nicer home, the roommate pays the same for larger room, bigger house, better amenities (roommate went out and bought a backyard grill first thing, not allowed in apartments), and my son is building equity and appreciation instead of paying someone else's mortgage. Look into your state's programs as most offer first time home buyers a 0 down deal after taking a class on home ownership and agreeing to live there 2 years or more. Buy, get a roommate to really cut your costs, and save your 25K for your first investment property.

Just like @Lynn M.  said.

We did that with our first home. Bought a 3/2/2 and moved in a good friend of ours.

Paid for half of the monthly PITI and it ended up cheaper than our older apartment. Can't go wrong with that!

Thanks guys!

@Anson Young   It would be great if I could find a duplex! I'm having a really hard time finding any that are still close to work (in LODO). I'll definitely keep my eyes open though.

@Sebastian Caycedo  @Lynn M.  I really like the idea of leveraging my "First Time" status and getting a roommate.

Both ideas would let me put little or no money down, save on expenses, and still have some cash to invest! I guess I just assumed I'd have to part with ALL of my savings no matter what I did. Bigger Pockets is the best!

Duplex near downtown? Probably not. Was just looking at duplexes today on MLS, found 47 in the metro area, only 3 were below 200k, everything around downtown-ish was 400k or so.

Glad it helped!  Keep us updated on how it works out.

@Luke Evans while renting a room in a SFH may be more profitable, I would consider the smaller multi-unit option instead. This allows you to attract more renters and not be dependent on you want living in your space. It also prevents you from having someone in your own space, which beyond being more comfortable, gives you more flexibility in the future (ie- can rent all of the units out, make money, and live where ever you want).

@Pete T.   

 I agree! I definitely think a small multi-unit option would be ideal, and I don't want to give up on finding one. It would give me a lot of flexibility and potential for good cashflow down the road.

Unfortunately, the places in the area I'm looking at tend to be well out of my budget. In the meantime, I'm willing to sacrifice and try to find a great roommate.

Your actions have to be aligned with your goals, but also taking into an account your market, budget, etc. Maybe it doesnt make sense for you to do MF or you cant get it where you want to- maybe renting a room is what works for you now. It is not always all about the CF. Being married, I have some places that might not be the best investments, but allowed me to live where my wife and daughter were happy.

@Luke Evans  if you want to stay living in Denver, get yourself out of the renting situation even if it means sucking it up and living small for a while. Then you can save cash and invest here or somewhere else that meets your cash flow criteria. I agree with Anson that a multi-unit would be great, and occasionally I see one that works for an owner occupier, but you could probably do just as well with a couple condos.  I'd be happy to talk to you about what I'm doing, I'm cash flowing $800/mo with my second unit. 

@Luke Evans  

Here are a few more buying options for you:

0% Down:
NACA (https://www.naca.com)
VA Loan (http://benefits.va.gov/HOMELOANS/index.asp) Rural Development Loans (Renovations MAY be included)
(http://www.rurdev.usda.gov/HSF-About_Guaranteed_Loans.html)

3.5% Down
FHA (http://portal.hud.gov/hudportal/HUD/topics/buying_a_home)

3.5% AND Renovations
FHA 203k loan (http://portal.hud.gov/hudportal/HUD/program_offices/housing/sfh/203k)

5% Down
Homepath Owner Occupied

Some Realtor.com results:
http://www.realtor.com/realestateandhomes-detail/2...
http://www.realtor.com/realestateandhomes-detail/3... <- says multi, but I'm not sure
http://www.realtor.com/realestateandhomes-detail/2... <- seriously funky house :)

@Micki M.  Wow! I didn't realize you could get loans that would cover renovations as well. Very cool. Do you happen to know if I would be able to put 3.5% or 5% down with a cosigner? The reason I ask is because I'd love to find a place like that funky house with a great location, but I don't qualify for a $400,000 loan. Would it be feasible to partner with someone while still qualifying as an owner occupant? Or is that a horrible idea? :)

Thanks!

@Luke Evans  

It is feasible, so finding a co-signer becomes the difficult part.  Both of you are 100% liable for the mortgage amount.

Generally it is a great idea for you, not such a great idea for your co-signer.  You need to work out enough of a financial incentive to get them on board.

Once you have rental income, most banks require 2 years of tax returns before you can use it for income.  Some of the programs allow you to use the rental income immediately, but I'm not exactly sure which those are.

Check with the state and municipality as well.  There may be programs available for helping you fix up places as well.  Boston MA has $1000 facade gifts and $10k, no interest loans for helping with small renovations.  Denver may have similar programs.

@Aaron Montague  I can definitely see why that wouldn't be ideal for a co-signer. It would probably have to be more of an investment partner who would have just as much of an upside if they're taking on half the risk. 

Thanks for the advice! I'll look into the programs here for sure!

Originally posted by @Anson Young :
If you are buying a primary, I'd buy a duplex or something you can rent part of it out for increased income and reduced living expenses.

I agree with you Anson. Just make sure you conduct a thorough screening for a good tenant who will be living in the other unit(s).

You can get lucky like I did and pickup a HUD home during the owner occupant window. You might consider picking up a cheap rental in Aurora and putting a section 8 tenant in there. I sold mine when the market ticked up for $130k. It cash flowed $400 a month.

Start looking for junkers and making offers directly to owners..You will find a deal!!..Sweat equity can save you some $$$....

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