Buy for myself first? Or by rental property?

Starting Out
11yFollow

Buy for myself first? Or by rental property?

Tony Dragoo
Saint Charles, IL · Member since 2015 · 19 posts · 3 votes

Hey guys just joined the site, love it! Was wondering if you would suggest buying a house for yourself first vs renting Or buying a rental property first? If buying a home for yourself first would the bank let you buy another property to rent out?

2Reply
48 views

Most Popular Reply

Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
11y

@Tony Dragoo 

  I think that is a regional question and a market question.. if you in a non appreciating market and I would describe that as a market that moves 1 to 3% a year if your lucky compared to say SF Bay Area.. then I would not worry about owning .. but if you west coast  upper east coast DC  and other areas were you can get priced out of entry level I would buy first.   but that's just me.

One reason I would buy in an apprecitating market is that your first 250k profit as a single person I s tax free and 500k as a married. Now I know many mid west and other market the houses will be luck to move up in value 20 to 50k in 20 years.

But if you look at CA.  and I look at what happened to me personally over the last 40 years I made Damn close to 2 million tax free on just my personal residence's.. so I really never bought investment properties .. why should I ... I made money flipping.

Podcast Guest on Show #222
JLH Capital Partners51 Review
WebsiteView Page
2Reply
See this reply in the discussion

26 Replies

Jump to latestLatest
  • Logan AllecBusiness Member
    Accountant · Los Angeles, CA · Member since 2014 · 1k+ posts · 980 votes
    11y

    Hi @Tony Dragoo --fellow newbie here, so take whatever I say with a grain of salt. What I'm concentrating on right now is BOTH buying a house for myself AND buying a rental property! I'm actively looking for fourplexes in a targeted part of Los Angeles (working on yellow letters right now) so that I can live in one unit and rent out the other three with only 3.5% down (FHA loan). The term people use around here for this is "house hacking". Brandon Turner wrote a blog post about it a while back.

    P.S. I asked the exact same question as you a couple months ago in my first post on BP.

    Clarita CPA Group516 Reviews
    WebsiteView Page
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Tony Dragoo 

      I think that is a regional question and a market question.. if you in a non appreciating market and I would describe that as a market that moves 1 to 3% a year if your lucky compared to say SF Bay Area.. then I would not worry about owning .. but if you west coast  upper east coast DC  and other areas were you can get priced out of entry level I would buy first.   but that's just me.

    One reason I would buy in an apprecitating market is that your first 250k profit as a single person I s tax free and 500k as a married. Now I know many mid west and other market the houses will be luck to move up in value 20 to 50k in 20 years.

    But if you look at CA.  and I look at what happened to me personally over the last 40 years I made Damn close to 2 million tax free on just my personal residence's.. so I really never bought investment properties .. why should I ... I made money flipping.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
  • Shane W.
    Professional · Santa Monica, CA · Member since 2014 · 186 posts · 81 votes
    11y

    @Tony Dragoo I agree with @Logan Allec 

    Even though I haven't done house hacking personally I know people who have and they don't regret it. It looks like a win-win situation to me and you'll learn first hand about how so many things related to real estate work.

    Just make sure the numbers work given your low down payment.

    0Reply
  • Jesse T.
    Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
    11y

    I would look for a property that is both "livable" and "rentable".  One very popular option for investors starting out is to buy a 2 to 4 unit property and live in one of the units.

    An advantage of buying a place to live-in is that you get lower interest rates than investment rates.  Also you generally need a smaller down-payment.

    If you buy a single unit, live in for a year or two and then use it as a rental, depending on your income and down payment your next property may not be a "move up", but if you are conservative you should be able to qualify for 2 properties without needing rental income.  Of course in practice you will want rental income to cover the mortgage on the first property.

    1Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    @Tony Dragoo @Logan Allec 

    We actually did both only through a single family home. We bought a personal property with 0% down loan (VA). It was a mess, we fixed it up. While we have a large down payment saved about 30k we didn't use it. We were able to fund all the renovations through living frugally on one paycheck and than investing the other one.

    5 months later we used that downpayment to put 2 offers on short sales. So now we got 3 houses for the price of one :) 

    I was honored to have the chance to talk about our strategy and what we did in podcast 103 here http://www.biggerpockets.com/renewsblog/2015/01/01...

    While we never house hacked, as every time I was in a position we moved instead, thanks navy. We did rent hacked. It was actually how we were able to save up the down payments for the first 2 houses while still paying for my grad degree. 

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    Thanks so much for the input guys and gals! I'm looking near dekalb Illinois to buy a rental/duplex next to the college there since its way cheaper than where I live closer to the city, I can afford to buy two properties I'm just not sure if the bank will loan you two home loans in a short amount of time? And I could put 8% down on both loans in my price range, am I just a newbie or is this done all the time? thanks!

    0Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    @Tony Dragoo 

    We have bought 5 houses in 3 years :)  with another 3 in the the works to be closed on in the next 6 months. It gets to be a TON of paperwork but totally doable if you have the downpayment and debt to income. Be prepared to have to carry both houses, so keep you debt low.

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    Awesome! thanks so much Elizabeth!

    0Reply
  • John Malahay
    SFR Investor · Lakewood, CA · Member since 2013 · 66 posts · 16 votes
    11y

    @Tony Dragoo I agree with @Logan Allec

    0Reply
  • Kyle M.
    Wayne, PA · Member since 2012 · 144 posts · 24 votes
    11y

    @Tony Dragoo 

    Tell us a little more about yourself so we can give you a more informed answer.

    In general I don't believe there is any right or wrong answer.  However, I do believe that house hacking is the best way financially to start building a rental portfolio.

    Personally, house hacking isn't for me.  I wouldn't like living a few steps from my tenants.  The multi family that I could afford are not in areas I want to live.  I also wouldn't like to keep moving from house to house.  Again, these are all area dependant and personal preferences.

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    Well I was looking for buying a cheaper home in an area closer to work and an all around cleaner nicer area, but after that I was looking to buying in the 60-75k range near the college in DeKalb Illinois to start out with for renting out to people.

           I rent an apartment now so I'm wondering if I should purchase my own property first to lower my monthly payment and THEN in a few months purchase an income rental in dekalb or if I should buy an income property first?

    0Reply
  • Andy Mirza
    Lender · Ladera Ranch, CA · Member since 2014 · 1k+ posts · 1k+ votes
    11y

    Without knowing more details, I'd say buy a home for yourself first. Everyone needs someplace to live and paying down a mortgage is better than paying rent to somebody. If you're willing to take on roommates or by a duplex, triplex, or quadplex, even better. (I've a wife and 3 kids now and our needs are different; if I'd have known better, I 100% would have done the fourplex hack)

    Once you've bought your house, moved in, and celebrated, then focus on getting the rental. I don't know your finances but it may be more difficult for you to get that 2nd loan. Typically, underwriters will be more conservative in their numbers than the actual numbers of the rental. They might only credit you a certain amount of the rental income or account for a higher vacancy factor.

    0Reply
  • Devin Morgan
    Baltimore, MD · Member since 2014 · 91 posts · 49 votes
    11y

    Hey Toni newbie here so tread with caution lol. Based on research I find you may want to rework your numbers if you plan on buying 2 properties back to back. You're only allowed a FHA loan on one house. So more than likely you may need a conventional loan for your second home. I know the standard is 20% and up down payment for investment properties but you MAY be able to get a 2nd home for as low as 5-10% down especially if it's owner occupied (but you would have to move into that home). My honest opinion it's better to wait until you have a decent down payment because 1. That should lower your overall payment 2. Looks better to the bank 3. No PMI. Definitely research! Oh and I think getting like a duplex would be great. I purchased a single family home but I rent out 2 of my rooms and am using that to go towards a down payment on another house. Goodluck!

    0Reply
  • Devin Morgan
    Baltimore, MD · Member since 2014 · 91 posts · 49 votes
    11y

    And excuse my spelling grammar errors it's 230am and I'm debating whether I'm legitimately sleepy or awoke lol

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    lol thanks Morgan! I think I'm gonna buy my house cheap where I'm at and put 8% down and then save up for about a year and see if I can purchase a quad or duplex, I'm only 22 so I figure I have some time to save and act accordingly, thanks for all your help everyone! bigger pockets is awesome!

    0Reply
  • Mike Richter
    Investor · San Angelo, TX · Member since 2014 · 27 posts · 5 votes
    11y

    I've had a few experiences with this recently. When I got to the San Angelo area, I purchased a brand new house for my family, which I envisioned would make a great rental when I moved (active duty military), we did that purchase with my VA loan with 5% down, which cut the funding fee significantly, and held back the other 15%. (An oil boom was starting up and none of us had any clue how well the properties would appreciate in 2 years.) A year later, we bought a newer turnkey rental in the same neighborhood, using some of the capital saved earlier.

    A year later, we bought the house directly behind our first one just as it was built as a primary residence, and put 5% down in a conventional loan ($63/mo PMI for a couple of months allowed me to do the next deal). Immediately after we closed on that house, we bought another turnkey rental(a pocket listing from the Realtors we've worked with on the previous 3 houses) closer to base using some of what we held back on the previous house as the down payment. After we closed on that house, we circled back and paid the primary to 78% LTV to get the PMI to fall off (thankfully our lender didn't have a seasoning requirement, things to check out, BTW).

    ----------------------------------------------------

    As others have mentioned, the decision will largely be a matter of your ability to work creatively with a mortgage banker (mine is awesome!) and the basic functions of your market, along with the ability to adjust the way your financials look to make underwriters happy (paying off some debts, liquidating some holdings, etc.). 

    Hope this helped, have a fantastic day!

    0Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    @Mike Richter 

    Congrats! Those sound like amazing deals. Great using personal properties and rentals. That's what we do. 

    0Reply
  • Mike Richter
    Investor · San Angelo, TX · Member since 2014 · 27 posts · 5 votes
    11y

    @Elizabeth (Trying to get these name tags to work, no luck. =P) From the podcast, I gather that your husband is a Navy Pilot, so I totally get where you guys are coming from, with moves every 18 mo to 2 years. 


    We're trying to move up into wholesaling for capital and fix and rent for income, with an eye to replace my military pay and going at REI full time.

    Congrats on your successes as well!

    0Reply
  • Elizabeth Colegrove
    Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
    11y

    @Mike Richter  - Guess the "blow stuff up" gave that away :)

    We use my income to for the investment capital. My goal is to have the rentals self-sustaining soon, so I can quit manage them and hopefully start a family. We will see :) Good luck!

    0Reply
  • Scott DixonPro Member
    Rental Property Investor · Champaign, IL · Member since 2012 · 192 posts · 74 votes
    11y

    Hey @Tony Dragoo  

    If you can qualify for a conventional loan on your primary residence with the standard 5% down you might want to save the 3% for your future downpayment on a rental property.  Any specific reason for the 8% down for you primary residence?

    Best of Luck,

    Scott Dixon  

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    No reason for the 8% just seems like an OK down payment for what I can afford :p Isn't conventional loans 20% down? I was thinking about going for a home path loan to live in the rental for a year then buy new but what would be the best route for this? thanks!

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    And Scott I drive by Peoria all the time...Small World! 

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y

    I wrote an article on this a while back if it helps at all-

    http://www.biggerpockets.com/renewsblog/2014/01/18...

    0Reply
  • Tony Dragoo
    OP
    Saint Charles, IL · Member since 2015 · 19 posts · 3 votes
    11y

    Thanks Ali that was a great read and an awesome confidence boost for the plans I have!

    0Reply
  • Jeremy Billauer
    Involved In Real Estate · Marina Del Rey, CA · Member since 2014 · 47 posts · 15 votes
    11y

    @Logan Allec I'm currently looking to do the exact same thing. Can I ask what part of LA you are looking at? PM and lets chat.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free