Buy a personal residence or invest first?

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Buy a personal residence or invest first?

Account Closed
Renter · Shawnee, KS · Member since 2012 · 13 posts · 3 votes

Hi everyone. Right now my wife and I rent our personal residence and we're wondering if we should buy a personal residence or a rental first? We're thinking the smartest choice for us is to buy a personal residence first because buying something comparable to what we rent now would cut our housing expenses by close to 50%. There's probably a lot that we haven't considered though, so I'd love to hear your perspective. We're also considering house hacking, but probably not going to go that route due to personal preference.

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Jordas Reyes
Real Estate Agent · Naples, FL · Member since 2015 · 86 posts · 27 votes
10y
I bought my first house about two years ago for me, my wife and at the time new born. I went with a house that met our minimum needs but that would do well as a rental once I was ready to move onto next property. Was nice to take advantage of fha loan and after running numbers with that low of down payment and all operating expense I am still able to bring in cash flow of $100. You will get different opinions I'm sure but I would not buy my dream house or anything close to it yet. Best of luck!
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  • Mitch Stanley
    Real Estate Investor · Portland, OR · Member since 2010 · 104 posts · 30 votes
    10y

    My wife & I attended a seminar - Jimmy Napier, Great Speaker. He encouraged people to buy Investment Property first & your personal residence last. One could have the best of both world by purchasing a 4 Plex. 

    Good Luck, Mitch 

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  • Jordas Reyes
    Real Estate Agent · Naples, FL · Member since 2015 · 86 posts · 27 votes
    10y
    I bought my first house about two years ago for me, my wife and at the time new born. I went with a house that met our minimum needs but that would do well as a rental once I was ready to move onto next property. Was nice to take advantage of fha loan and after running numbers with that low of down payment and all operating expense I am still able to bring in cash flow of $100. You will get different opinions I'm sure but I would not buy my dream house or anything close to it yet. Best of luck!
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  • Account Closed
    OP
    Renter · Shawnee, KS · Member since 2012 · 13 posts · 3 votes
    10y
    Mitch Stanley do you remember what some of the reasons were why he was suggesting you should invest before owning a personal residence?
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  • Russell Naylor
    Colorado Springs, CO · Member since 2016 · 214 posts · 58 votes
    10y

    I'm in a similar situation. The more I think about it, the more I lean towards buying a solid starter that will become a rental in the future. Probably get an FHA loan to keep up front costs down and leverage. Then when I want to upgrade or move on, home becomes a rental.

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  • Account Closed
    Kansas City, MO · Member since 2016 · 11 posts · 3 votes
    10y
    I'm in the same position too but I'm moving forward with buying a personal property first to cut my home expenses in half and use that money towards a down payment. I think there are benefits to both options.
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  • Account Closed
    VA · Member since 2016 · 10 posts · 6 votes
    10y

    If we had it to do over again, we would have bought a house that we could rent out in the future or house-hacked for a while. But two years ago we never even considered investing in real estate so we bought  a house that was not a good investment and is now a huge obstacle preventing us from getting started on the investment path. Live and learn.

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  • Dan Schwartz
    Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
    10y
    We thought it would be wise to invest while renting. Our mortgage broker at the time said, "I have to count your housing payment whether you rent or own." It was 2011; we were able to buy a house that was 33% bigger than what we were renting and at a housing payment that was 67% of our rent. The freed-up DTI helped us buy three properties (including our primary) within six months. Sure, that was 2011, and they were giving away houses in Phoenix. But I'd say it was good advice. If you can lower your housing payment, consider buying a primary first. And think about the primary being something you can rent out later. We are renting our former primary; we moved out in less than three years.
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  • Pete Perez
    Engineer/Real Estate Investor · Renton, WA · Member since 2015 · 368 posts · 120 votes
    10y

    @Account Closed

    I don't know if there are many multi family homes in your area, but that could sort of kill two birds with one stone if you are interested? You purchase a 2, 3, or 4 unit home, rent out the other units, and live in one of the units. That should cut your housing expenses even more (however you'd need to consider the same things as you would on a rental: Vacancies, Repairs, Management, etc). 

    The difference in the amount of money you'd be able to save to start your RE investing career could be staggering compared to purchasing a single family home first. It all depends on your area and your situation of course. 

    Below is a life cycle cost analysis I did for my fiance when I was trying to convince her that we needed to purchase a duplex to start. When we compared purchasing a single family home to doing a triplex first, the amount we could save in 2 years was effectively double(without considering vacancies, repairs, etc). Also because we are currently in CA (moving to Washington state in september) we have to consider the price of homes and how they can change so drastically. I personally think that in SoCal we are nearing a peak, and if we had purchased a SFR we could potentially be stuck. Plenty of things to consider, but in my humble opinion house hack is a great way to start.

    Best of luck,

    Pete

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  • Mike Hanneman
    Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
    10y

    You should listen to the market and do what it tells you to. If you can save money by buying your personal resident vs renting, you should do this. If it's cheaper to rent then rent. Do what would make the most sense for your finances.

    You can take it one step further by house hacking, try to find a duplex and live in one side and rent the other. You can get better loan terms but you do have to live there a year, but then you can repeat and by another duplex, after a year.

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  • Janina Farr
    Investor · Chicago, IL · Member since 2016 · 33 posts · 13 votes
    10y
    I'm no pro but from all the reading I've been doing I've learned that buying investment property first is better , and if you are really looking to move then buy something you can rent out in a few years. Such as a duplex or Tri-plex. That's the easiest way to get started. You will have your first rental property. Also you have to think about how this big purchase looks on your credit. If you buy a house to live in and have no plans of renting it out and allowing that property to be income then that's just looked at as debt. Your not gaining extra income from it. You need to purchase something that will be extra income when its time to purchase your next investment property!!! Just my 2 cents!!
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  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Account Closed,

    My personal take would be to either...

    1. Invest for income to make the payments on your personal residence or

    2. Do what the BP-ers call "house-hacking": Pick up a multi-family residential property (2 to 4 units) and occupy one unit. You will be able to get owner-occupied financing and your tenants should pay enough to cover your PITI and expenses leaving a profit for you.

    I've noticed that the term "house-hacking" is catching on outside of BP! Cool...

    David J Dachtera

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Account Closed  if your in a non appreciating market then home ownership in my mind is not that critical.

    on the west coast I like buying home first.. and own it 20 to 30 years and then you have your 500k tax free gain.. take a lot of drip income to make that..  ( as long as that tax treatment remains)

    Its kind of ingrained on us West coast folks to get into that first home to live in.. Heck in many areas on the west coast if that's all you did 20 to 30 years ago you have million or more in equity today.

    Plus you have to figure in your family life and piece of mind etc. 

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  • Account Closed
    OP
    Renter · Shawnee, KS · Member since 2012 · 13 posts · 3 votes
    10y

    Thanks everyone for your thoughts! You guys are awesome and have given us a lot to think about.

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  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    10y

    Hey @Account Closed said, if you are not in an area that offers much upside and has affordable rent, perhaps you're better off investing elsewhere in a rental than purchasing a primary locally.

    However, with that said, I believe I saw a few people mention the 'house-hacking' route above; which I'd strongly urge you to consider. Great way to "kill two birds with one stone," so to speak, and capitalize on the potential benefits of BOTH primary home-ownership and owning rental property.

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