23 YO with 43K, Do I Rent or Buy?

Question

Hi everyone, I am 23 years old. I am a civil engineer, but I am currently doing my masters and working on my side business that brings in 6 figures a year. I have saved so far $43K and I really want to invest in my first property soon. According to my lender, I can get a home valued at 400K. The problem? I currently live in the Bronx and there aren't any affordable $400K multifamilies in my area. I am thinking of investing in NJ or CT (Please suggest areas. I am thinking about Bridgeport along I-95 and Newark, NJ).

At the same time, I would like to use a small portion of the money I saved to move to a better area for my family. I am thinking of renting in Westchester while I save extra cash. That rent estimate would be ($3,300-3,700), but my mother thinks the rent sounds like two mortgages.

I am asking for advice because most of you have either a strong financial background or strong real estate background. Do you think it is worth it to purchase a property at this time or to continue to rent? I have Ramit Sethi whispering in my ear, telling me to rent, but I think the benefits differ depending on the person.

Pierre A. · Answer

@Brandon Rush @Jamila Thompson just to piggy back off Brandon I would definitely start with a FHA program. I used NACA to get into my first multi family and my entry fee was right around 40k. Great way to start building wealth, appreciation, gain the tax benefits all while learning to be a landlord (if you don’t hire a PM) and live either free or pay way less than you normally would for rent.

Brian Ellwood · Answer

Hi Jamila! Whether you rent or buy your personal won't affect your overall financial picture a huge amount, at least not over the next 5 years or so. Maybe wait and see what the market does. Your bigger play is in growing your side business and growing your rental portfolio, so I'd focus on those two things.

As far as market selection, that's a key piece to your success when it comes to buying rentals. Many markets do not work as rental  markets right now. I suggest looking at what they call "linear" markets that don't rise or fall too much - there's a lot less competition there and prices still make sense for positive cashflow.

DM me if you want more help, good luck!

Daniel Kong · Answer

If you can buy something that cashflows for like 3.5% down, I'd definitely go that route. Its almost like a built in BRRRR. If you can find a small multifamily 2-4 units, or maybe a single family that you can househack, then you could theoretically live rent free or even get paid to live there. And with interest rates at historic lows, its such a great time to lock in a 30 year mortgage. If your property value jumps up in the next 5 years, you can sell it tax free (assuming it went up by less than $250,000).

Short story is, as long as you purchase something that cashflows or comes close to cashflowing, then I'd recommend buying. Either way, great job saving, and you got a bright future ahead!! :)

Jamila Thompson · Answer

Thank you very much Brian, I agree! I appreciate the advice!

Angelo Forzano · Answer

@Jamila Thompson

Brandon Rush · Answer

Hey Jamila,

I am from Queens, NY and know your pain. Its like a whole other world in NYC with real estate prices. My suggestion would be to buy with a low down payment option such as 3.5% down payment FHA or 5%  Conventional down payment for first time home buyers (if you can find this financing). Find a small multi (2-3 units), something with decent returns, and use that as your springboard as you figure things out. On a $400K property, 3.5% is only $14K. Not saying you have to spend that much though.

You can also monitor sites such as hud home store which usually allows an opportunity for owner occupants to get first dibs on foreclosed single and multi family properties before investors do. Reach out if you have any questions and good luck.

Nicole (Dunlap) Pendergrass · Answer

Hey @Jamila Thompson Please message me so we can talk.  I bought a 3 family house-hack in NYC (the Bronx) a few years ago with way less than $43k and making way less than 6 figures.  I'm also currently looking for a 2 family in Westchester to move my family, so can give insight on both.  I could give advice based on the info in your post, but I have a few clarifying questions and I think it would just be better to talk :-)

Tyler Mutch · Answer

Owning is usually the better financial move, but it also would require you to take time away from building your side hustle. Weighing the extra hours/ money you put into the home to get it fixed/rented vs having spent that time on building your business or spending the extra $ on marketing for your business.

I have heard many super high net worth people don't own their home because the time it takes to work on a home/get someone to work on the home isn't worth their time. They'd rather lock in their expenses and not have to deal with repairs, just make a call to their landlord.

Sam Lewis · Answer

Buy!

Jesse Mancuso · Answer

@Joe Jor great points on the buy-and-hold approach.

23 YO with 43K, Do I Rent or Buy?

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