Buying First House While Still Paying Rent

8 Replies

Hello BP community,

Here is the situation. I'm really itching to get started with an investment property. I'm looking to buy a HUD/Fannie Mae forclosure paying 3.5% down. The issue is I'm only 2 months into a 12 month lease. I'm paying $600/month for my current apartment. I want to take advantage of the owner-occupent low down payment and option to do a live-in flip which requires me to live there for two years. I'm in a good market and would hate for an owner-occupant bid opportunity to slip by me simply because I was waiting for my lease to end. Anyways in the next few months I should have enough cash to have the option to buy something and I was wondering if I'm completely crazy to attempt to purchase anything while still paying rent for my current place. Based on some properties I've looked at the mortgage/insurance payment would be about $500-$600 so combined with my rent I'd be paying around $1100/month. I know this question depends on a lot of different factors but I just wanted some opinions from the BP community. Advice from a local loan officer said I'd still qualify as an owner-occupant even if I am still paying rent. I make a decent wage from my job and live pretty frugally so I could afford it while still have the ability to save/use my earnings for repairs/rehab.

Thanks guys!

Can you buy a foreclosure with that kind of financing? I own several rentals and rent, out of choice mostly.

I’ll probably have 20 rentals before I buy a primary residence

@Nick Barber I do I just checked. But I have a feeling that i wont have much luck finding anyone since the complex itself is having a hard time staying above 80% occupancy. I also have the option to terminate my lease but I'd have to pay every month that they can't find a replacement tenant and I assume that means ill just end up paying the full 12 months since they have such a hard time keeping occupancy up.

FHA is 3.5% with 1 year “intended occupancy”, not the 2 years you stated. You have 10 months to go on lease. 3-4 months before you have the down payment. Then figure maybe a month or two to find a property (which would be fast). Then 45 days for close. That takes you to almost the end of your lease. Keep doing research and plan to get it done!

@Anthony Wick thanks for the reply! You are probably right that it will take some considerable time to actually find a deal and close on it(assuming I actually find something and have the highest bid). With the properties I am looking at, most of these foreclosures are in the $100,000 range so I'd have the money to close on something in a month or so using a %3.5 FHA loan or a 3% conventional loan. The two years of occupancy I was referring to was so that I could have the option to sell the property without paying capital gains taxes which I believe is two years. I might keep as a rental depending on how the numbers work. One of the reasons I feel rushed to get into something is that I am not sure how long I'll actually be living in the city of Huntsville, AL. My long term plan is to move closer to family in Texas. I'm going to keep doing research and try and work with my leasing company in the case that I do find a deal before my lease ends. Maybe they will let me off easy if I'm friendly enough with them.

@Lance Middleton I think it is great that you are eager to start your investing journey.  Based on the situation you described I would focus on saving/analyzing deals.  You don't won't to miss opportunities however if done prematurely you might purchase a property before you are ready to deal with home ownership.  There are many other expenses that you need to be prepared for when you buy.  Also, by using the remaining time on your lease you have time to explore different neighborhoods and find hidden gems.  I was able to find a great deal here in Huntsville just by waiting until off peak season.  My point is there will always be deals just make sure that you are in the right position to get them.

Hi Lance!

I completely agree with @Tim White ! Even after a year of listening the BP podcast and tons of books there are still so many nuances of real estate investing that I am still learning.

Its great that you are already thinking about your first investment property but patience is of a key essence here! Real estate is all about negotiation and in negotiation, whoever wants it the most, looses! 

But having said all this if you really find a great deal then make sure you analyze the numbers well and don't be afraid to pull the trigger! 

Just my 2 cents! Hope I have not confused you more! :)

All the best!

@Tim White @Gorden Lopes I think you are right. I'm getting a little ahead of myself. I think just talking to a local agent and loan officer got me a little antsy to buy something soon. I understand that's how bad deals happen though. I think for now I am just going to keep studying and saving for the first purchase maybe at the end of the year or beginning of next or whenever I find a good deal. I have however decided to go ahead and take a real estate license course in the meantime. I think the cost/fees associated with becoming a real estate agent will be worth it for access to MLS and just to have a better idea of the local market. Also will be nice to pay myself a little something when i do purchase something.