Should I invest in a rental property or buy my own home first?

27 Replies

Hi everyone! I am interested in acquiring my first rental property through Rent to Retirement turnkey company. I am still renting an apartment for myself. Would it be smarter to buy a house for myself to live in before buying a rental property? I'd love to househack, but I can't qualify for a loan large enough to purchase a multifamily residence yet. I've been abroad for the past 3 years. I just got back to the states early this year and finally got a job as a property manager assistant. About 25%-50% of my income is commission through leases and banks need to see 2 years worth of income if the job is commission based. I have enough for a down payment for a few of the homes with the turnkey company. It would be a while until I can get approved for a loan for a multifamily residence to househack. Looking for advice on whether to pull the trigger now on a home through Rent to Retirement or wait until I qualify for a loan to househack (could be 2 years from now). I've heard that it's easier to buy your own home once you have a few rental properties and not the other way around. Thanks in advance for your help. I'm on my 4th real estate investing related book (2 of those were by Brandon Turner) and I'm eager to get started!

@Devan Kaye

Hey there! I have no advice for you but am following your question because I was just asking this question myself! I hope you get some good answers for this. My instinct tells me that it couldn’t be a bad idea to invest in a rental before you buy your own home especially since it sounds like you have some property management experience (unlike me). You would basically just be increasing your income before buying a home! But that’s my inexperienced two-cents.

good luck to you! Hope you don’t mind me piggybacking on your post so I can get some good info from it (:

@Devan Kaye

This is probably a question that many people find themselves pondering. This really comes down to a lifestyle choice. Everyone wants to own their own home as there is a personal satisfaction in that, but it really helps to step back and take an objective view on what is really the best course of action when it comes to your overall financial goals. If you read the Kiyosaki books he is always saying how your own home is not an asset which is very true from an investment perspective. Your primary residence takes money out of your pocket as a liability, while an income producing rental property puts money back in your pocket as an asset. So from a strict investment standpoint purchasing a rental property is the better option to improve your financial balance sheet. There are of course many other things that need to be considered however. Are you living in an expensive market where your mortgage expense would be much higher than you are paying in rent? If so, then maybe it makes sense to simply continue renting to allow you to save up more capital quicker. Lots of things to consider here, and I'm happy to discuss further with you over a phone call if you'd like. Just let me know what other questions you have, or if you would like to have a continued discussion on this topic.

In regards to investing with our company, I've included some resources for you below to see the types of experiences many investors have had, and to gain a better understanding of what we do. I'm happy to schedule a follow up call whenever you would like. Just let me know!

I'm sure you'll find this informative. Looking forward to hopefully connecting in the near future!

https://www.biggerpockets.com/users/ZacharyCole/references

https://www.biggerpockets.com/forums/92/topics/518583-feedback-on-renttoretirement-and-zach-lemaster

https://www.biggerpockets.com/forums/92/topics/765347-rent-to-retirement-review

https://www.biggerpockets.com/forums/92/topics/808479-rent-to-retirement-experiences

https://www.biggerpockets.com/forums/12/topics/533693-anyone-worked-with-renttoretirement-turnkey

https://www.biggerpockets.com/forums/92/topics/581730-rent-to-retirement-zach

https://www.biggerpockets.com/users/ZacharyCole/references

@Devan Kaye

Buy the rental property. There's no sense in waiting 2 years to start moving you closer to your financial goals. I'm in a similar boat, I own a rental but do not own my own home, yet. 

I purchased a rental through @Zach Lemaster over at Rent to Retirement. I got an affordable property, fully renovated with good returns. I've been impressed with their team and the customer service I've received. They provide good products and will be able to help you get started. 

Feel free to PM me and I can elaborate. 

Originally posted by @Devan Kaye :

Hi everyone! I am interested in acquiring my first rental property through Rent to Retirement turnkey company. I am still renting an apartment for myself. Would it be smarter to buy a house for myself to live in before buying a rental property? I'd love to househack, but I can't qualify for a loan large enough to purchase a multifamily residence yet. I've been abroad for the past 3 years. I just got back to the states early this year and finally got a job as a property manager assistant. About 25%-50% of my income is commission through leases and banks need to see 2 years worth of income if the job is commission based. I have enough for a down payment for a few of the homes with the turnkey company. It would be a while until I can get approved for a loan for a multifamily residence to househack. Looking for advice on whether to pull the trigger now on a home through Rent to Retirement or wait until I qualify for a loan to househack (could be 2 years from now). I've heard that it's easier to buy your own home once you have a few rental properties and not the other way around. Thanks in advance for your help. I'm on my 4th real estate investing related book (2 of those were by Brandon Turner) and I'm eager to get started!

In most cases I would say that househacking would be the best alternative, but seconding all what is said above, I think your best move would be to sling shot into rentals. 

That being said, I think "BRRRR"-ing a property would be your best move, rather than turn key. You can achieve quicker growth this way, but it comes with risk.

 

@Devan Kaye Have you considered house hacking a SFH? Not sure if sharing a living space appeals to you but I know a few folks that got started that way. They bought a 3 BR SFH and just rented out the other 2 bedrooms.

  @Zach Lemaster :

Thanks for your reply! I've heard only good things about your company. Rich Dad Poor Dad was what got me excited about investing in real estate (like a lot of people)! I am from Honolulu, Hawaii (I know, yikes! $$$$$$$). But, I'm currently living in Phoenix, Arizona. I'd love to set up a call with you to discuss further. Looking forward to hearing from you!

 

Originally posted by @Kris L. :

@Devan Kaye

Can you do both? Maybe buy a duplex and live in one ride renting out the other?

Hi there! I'm unable to get a loan for a Multifamily residence at this time. Since I just started my job and a good chunk of my pay is commission, a bank wants to see 2 years of commission. I'd 100% househack if I could get approved for a loan that large! 

 

Originally posted by @Sam L. :

In most cases I would say that househacking would be the best alternative, but seconding all what is said above, I think your best move would be to sling shot into rentals. 

That being said, I think "BRRRR"-ing a property would be your best move, rather than turn key. You can achieve quicker growth this way, but it comes with risk.

Hey Sam, thanks for your input! I'd 100% househack if I were able to get a loan that large. I just started a new job where a chunk of my income is commission and banks want to see 2 years of commission. To a bank, it looks like my income is low because all I have to show right now is my hourly rate.  

 

Originally posted by @Jon K.:

@Devan Kaye Have you considered house hacking a SFH? Not sure if sharing a living space appeals to you but I know a few folks that got started that way. They bought a 3 BR SFH and just rented out the other 2 bedrooms.

Hey Jon! I actually haven't considered that. It's been a long time since I've shared a living space so it would be.........quite the adjustment lol. But it does seem like a good idea with my current circumstances and like I said, I'm eager to get started!

 

Originally posted by @Devan Kaye :
Originally posted by @Sam Lewis:

In most cases I would say that househacking would be the best alternative, but seconding all what is said above, I think your best move would be to sling shot into rentals. 

That being said, I think "BRRRR"-ing a property would be your best move, rather than turn key. You can achieve quicker growth this way, but it comes with risk.

Hey Sam, thanks for your input! I'd 100% househack if I were able to get a loan that large. I just started a new job where a chunk of my income is commission and banks want to see 2 years of commission. To a bank, it looks like my income is low because all I have to show right now is my hourly rate.  

I know you would, but it will come in time ! In the mean time keep working that job and earn those commissions so you can eventually qualify that as stable income. 

In the meantime you can network with local investors to find an off-market property that is a deal, that you can rehab, rent, and refinance - and ideally pull money out in the end : ) 

 

Originally posted by @Devan Kaye :
Originally posted by @Sam Lewis:

  

 Definitely, that's the plan! I'm currently in Phoenix, AZ and will start going to local meetings :) 

 

Such a cool market! I have heard nothing but great things about Phoenix - have visited once

 

Why not both?

Can you qualify for an FHA or similar low down payment loan for a personal residence? Even a single-family or a condo? Learn the techniques for analyzing deals and apply that to your home search. Buy that home, possibly rent other rooms out to do a "mini-house-hack," then do it again in a few years. Save up, buy next place (maybe that's a multi) with owner-occupied financing, rent the first house out.

Three of my five doors have been my personal residence, except I didn't know how to analyze deals for the first two, so they're not amazing performers. I wasn't even thinking about rentals when I bought those, and I didn't know what I didn't know. You have the advantage that you can learn deal analysis before you buy your first property!

Why don't you do both? Buy a duplex or a triplex, live in one unit and rent out the rest. That is how I got started. I earned enough income from the rentals to cover all the expenses so I lived there for free. I maintained my full time job which allowed me to accelerate my savings. After a year, I refinanced pulled the cash out and bought another triplex. 

David Greene from Bigger Pockets repeatedly (books, podcasts etc.) makes a strong case for using a house hack as your first real estate move.  Check out the content and let us know what you think!

@Devan Kaye @Bernadette Johnson

One step to help clarify a lot would be to run the numbers on all the scenarios. The investment properties, a house hack, a primary home, etc. That takes a lot of the guess work out as far as what option(s) would be most advantageous. For your more general question--buy a house or an investment property, DTI and all that aside, I vote investment properties all day long:

https://www.biggerpockets.com/...

In considering househacking, be sure to put a lot of thought into that and decide if it would really be that profitable for you, as well as other considerations (a lot of these depend on where you live as to which ones will matter):

https://www.biggerpockets.com/...

Assuming you're buying smart investment properties, I would rank the options from most profitable to least profitable: investment properties, househacking, primary home. My thought is always to start out with the most profitable. If you start out the other way around, you're going to be tying a lot of your money up with less return.

Devan, any reason for Rent to Retirement in particular?

Originally posted by @Colin Reid :

Why not both?

Can you qualify for an FHA or similar low down payment loan for a personal residence? Even a single-family or a condo? Learn the techniques for analyzing deals and apply that to your home search. Buy that home, possibly rent other rooms out to do a "mini-house-hack," then do it again in a few years. Save up, buy next place (maybe that's a multi) with owner-occupied financing, rent the first house out.

Three of my five doors have been my personal residence, except I didn't know how to analyze deals for the first two, so they're not amazing performers. I wasn't even thinking about rentals when I bought those, and I didn't know what I didn't know. You have the advantage that you can learn deal analysis before you buy your first property!

Hey Colin! I was just looking into FHA loans. I like that idea of a mini house hack in a SFR. It's more realistic for my current situation. Thanks for your input :)

 

Originally posted by @Nick Kahler :

David Greene from Bigger Pockets repeatedly (books, podcasts etc.) makes a strong case for using a house hack as your first real estate move.  Check out the content and let us know what you think!

Yep, I would 100% house hack, but as I said in my original post, in my current situation, I'm unable to qualify for a loan that large at this time :/ 

 

Originally posted by @Ali Boone :

@Devan Kaye @Bernadette Johnson

One step to help clarify a lot would be to run the numbers on all the scenarios. The investment properties, a house hack, a primary home, etc. That takes a lot of the guess work out as far as what option(s) would be most advantageous. For your more general question--buy a house or an investment property, DTI and all that aside, I vote investment properties all day long:

https://www.biggerpockets.com/...

In considering househacking, be sure to put a lot of thought into that and decide if it would really be that profitable for you, as well as other considerations (a lot of these depend on where you live as to which ones will matter):

https://www.biggerpockets.com/...

Assuming you're buying smart investment properties, I would rank the options from most profitable to least profitable: investment properties, househacking, primary home. My thought is always to start out with the most profitable. If you start out the other way around, you're going to be tying a lot of your money up with less return.

Devan, any reason for Rent to Retirement in particular?

Hi Ali, thank you for your input! I love that - "start out with the most profitable." I just recently moved to Phoenix, AZ. Househacking would be my #1 choice, but a mortgage broker recently told me the only loan I'd qualify for at this time is around $100k. I just started a new job as an assistant property manager and a chunk of my income is commission through leases. I've been told banks want to see 2 years of commission before counting it as income. 

I was looking into Rent to Retirement because I've seen countless posts/ reviews on biggerpocket forums saying how great that company is, especially for those just starting out. I've heard that they spend a lot of time with you to help get you started. Also, they have a few homes that I'd qualify on a loan for. 

@Bernadette Johnson

Personally ia would take a different approach.

For start, i disagree that your own property differs from an investment. It does not help on asset? Bit it does Reduces your liability. Your monthly net income can get bigger owning your own property.

I would actually try to look the property you are renting as an investment property. Does it gives you enough return to buy? Does it gives you, after mortgage, positive income ( rent minus mortgage minus expenses)? Then it is worthy to buy! If not, then it is wise to look at other investment that would produce a positive income.

If you get to a tie, i prefer to own my property than rent it, as an income from rent will give leverage for free ( tied situation than owning). The worse you will have is to have an empty. I nit having no income, and having to pay your rent. Remember, you be your best and most trusted tenant you will ever find!