Primary Residence - 3/2, 2/2, or 1/1?

Question

Hello,

I'm going to be honest. I don't currently know much about real estate investing nor what is a good "deal" for buy and hold...I'm looking to buy my first primary residence single family home, though, this year. I wish not to "buy a bad deal" but I also wish not to be "stupid" and buy a more expensive 3 bd 2 bath if the numbers don't make sense to rent it out "eventually" with the higher interest rates we see this year & hot market here in Houston. I can find some 3 bd 2 bath 1980's homes for around 130k that seem to be in decent shape in the suburbs and can find some 1 bd or 2bd homes for about 100-115k. A lot of houses are being sold for above asking price now a days. The good news is, I get to take advantage of first time home-buyer loan options with a lower downpayment...

I'm not sure if I should buy a cheaper 1 bedroom or 2 bedroom place for me to live in for 5-10 years of if I should go ahead and bite the bullet to purchase a 3bd 2bath with hopes of one day turning it into a rental (because 3 bd 2 bath make the most sense for rentals from what I've gathered). Any suggestions for me? I currently rent an apartment, am a single man with no plans of having a family... and it would be nice to own a home... live in it.. learn about home ownership... and eventually gain knowledge about passive income rentals as I live in the home.

-Rick

Thomas S. · Answer

Financially speaking you would be farther ahead to rent a small home for yourself and invest in a purpose built multi unit property as a rental.

Owning a home is a liability and is far more costly that renting. Aside from the forced savings built into a mortgage there is no up side unless you are buying in a area with very high appreciation. The vast majority of personal homes will cost the home owner far more than they will ever be worth.

SFHs also do not generally cash flow very well due to the higher per tenant expenses. If you buy with the intent of renting it out in the future the purchase price needs to be driven by it's potential rental income not the amount home owners are willing to pay for a SFH.

Rick Alvi · Answer

@Dana Whicker @Natalie Vane @Shawn Devoid

Honestly guys and gals, I don't want tenants nor roomates immediately near me (multifamily) nor in my home. I'm a private person and a very light sleeper. I have a health condition that forces me to sleep well and keep stress low. Having roommates or tenants nearby would cause me anxiety. I already hate living in an apartment for the fact it's loud here... for those reasons I prefer to own a single family home and live in it alone or rent one and live alone. Thank you all so far for the discussion. If I rent I will just save and buy an investment home when I'm ready and more knowledgeable.

Rick Alvi · Answer

thank you @David Krulac!

David Krulac · Answer

@Rick Alvi

I would buy a 3/2 for your first property.  One reason is that it is the most popular configuration and will be the easiest to sell or rent.  Its what people want.  I've bought 1 and 2 bedroom houses but not as my first property.  I talked about my first purchase in Bigger Pockets Podcast #82, and it was  a3 bedroom ranch house.  I've bought everything from 1 br to 5 br, detached, townhouses, condos, apts, and by far the easiest and most common is 3 br, 2 baths.

Rick Alvi · Answer

Thank you all..

Mike Sivert · Answer

Because you mentioned that you want to move and rent out your primary residence in the future than I think you may want to go with a 2/1 or 3/2 but look at the numbers.

David Faulkner · Answer

Based on what you've said, I would buy a 3/2 if it is only $15-30k more than a 2 bd, unless you could find a 2 bd where you could add a 3rd br for less than, say $10k with permits. 3/2 homes are ultimately much easier to sell or rent in most markets. I would find a fixer where you could add some forced appreciation via sweat equity. I would buy the smallest, most run down house on the nicest block that you can realistically afford. Cosmetic fixers with good bones are best since cosmetic items normally add the most value vs cost to fix them compared to the stuff you don't see (plumbing, electric, roof, etc.). Built sometime in the 80s-90s, and with NO HOA. Something dirty, smelly, dated finishes, awful colors, but all the major systems are basically sound, and discounted appropriately (or better) for the condition it is in ... don't buy it if they are trying to comp it based on turnkey ready homes. If you don't want roommates, you may consider a "live in flip" where you fix as you live there, then after 2 years sell tax free or cash out refi the down payment on your next place and turn it into a pure rental.

Andrey Y. · Answer

Buying a home that you and your family will love to live in is not the same thing as buying an investment property. They will look totally different and achieve two completely different goals. Decide what you want.

S. J. Gardner · Answer

You mentioned making use of first-time homebuyer programs. Are you aware that most of those (if not all) will require you to actually live in the home? You might need to reconsider your financing options if you're looking for an investment you do not intend to occupy. One option might be using the FTHB programs to buy a livable home well enough under market value so that you can draw on the equity for a downpayment on your investment property.

Shawn Devoid · Answer

Totally understand- you have to do what works for you!  You can still use the calculator above to compare your anticipated profits from a 1/1, 2/2, or 3/2 to decide what type of property is best for you.

Primary Residence -> 3/2, 2/2, or 1/1?

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