Should you buy a home for yourself first, or a rental unit first?

Starting Out
5yFollow

Should you buy a home for yourself first, or a rental unit first?

John Brooks
Brentwood, CA · Member since 2020 · 20 posts · 15 votes

I recently purchased my first home for myself and my family to move into. I thought it was a good start because I could gain equity and use it to my advantage later. I also got tired of paying someone else to live in their house and saw this as a forced savings account. A coworker of mine is saving his money up to buy a rental first to start his passive income dream. Is one way better than the other? Are they equally beneficial? Or does it just depend on your situation?

For added context if it helps, I live in the CA, San Francisco Bay Area.

6Reply
200 views

Most Popular Reply

Tommy Loretz
Investor · Walnut Creek, CA · Member since 2016 · 17 posts · 21 votes
5y

@John Brooks

My first purchase in the Bay Area will be a 3 or 4 unit building that I can house-hack (live in 1 unit and rent out the others). I, as well as most of BP, view this as the best of both worlds; Building your own equity while also starting out with investment management.

8Reply
See this reply in the discussion

70 Replies

Jump to latestLatest
  • Tommy Loretz
    Investor · Walnut Creek, CA · Member since 2016 · 17 posts · 21 votes
    5y

    @John Brooks

    My first purchase in the Bay Area will be a 3 or 4 unit building that I can house-hack (live in 1 unit and rent out the others). I, as well as most of BP, view this as the best of both worlds; Building your own equity while also starting out with investment management.

    8Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Thomas Loretz I completely agree, its an amazing house hack. I already have a family, so getting my girlfriend on board with that is a little hard. But seriously single man me would be all about that or a duplex even. And thank you for your reply I appreciate it.

    4Reply
  • Nick Barlow
    Warsaw, IN · Member since 2017 · 229 posts · 270 votes
    5y

    @John Brooks it totally depends on your marital status. There aren't many spouses willing to go move into a house hack, although financially, it will set you much further ahead than your primary. The equity you'll be building will not become dollars in your bank account until you either cash out refinance or get a HELOC.

    In contrast, Your coworker could get a rental where the Cashflow covers some living expenses.

    Neither is a wrong answer, just opportunity costs. Good luck!

    3Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Nick Barlow thank you I get so stuck on analyzing everything it helps to know either way wasn't the wrong route. Im very green to alot of this and am trying to absorb as much information as I can. Thank you again for your time it is greatly appreciated.

    1Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    5y

    I live in Hawaii and rent. That is what makes sense in any primary market where the RV ratios are such.

    I also own 4200 rentals too... it works. That is you want to make one of the biggest financial mistakes young couples make.

    7Reply
  • Kenneth Burdick
    Rental Property Investor · Rancho Cucamonga, CA · Member since 2020 · 58 posts · 23 votes
    5y

    @Lane Kawaoka I own a home in So Cal and am thinking of buying a small multi-family rental property in HI with the intent to move out there in a few years. I'm guessing you think I'm way off base on both of these moves? haha.

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    It really depends on your situation.  Some people who live in an expensive area may not be able to buy a home to live in and it is cheaper for them to rent, either mortgage payments are higher than rent or they can't save enough for a down payment.  I know markets where the mortgage payments alone are higher than the rent and that doesn't include property taxes and insurance or maintenance.

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @John Brooks imo this depends on so many variables like the market, income, affordability, how mobile someone wants to be, priorities of the investor, etc. In our case we rent and are trying to direct our resources to acquire more rental property. Our goal is to increase our income since we were priced out of our market years ago in So-Cal. So for us it makes more financial sense to rent where we live and invest where the numbers make sense. One day when our income is such that we can more easily buy in So-Cal we probably will. Right now, without a creative strategy, we would increase our housing costs by $1k-$1500+/mo if we bought and we would prefer to grow our biz instead. We still have 4 kids at home and we are likely to house hack in So-Cal when we do eventually buy. Simply put we need to focus on generating more income before buying in So-Cal.

    2Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Brian Gerlach I understand where you are coming from on the family sense. If you don't mind me asking, how are you planning on investing in socal? I was looking around that area and I couldn't afford much with enough growth potential. Living in the bay is starting to have me look at states like Florida, South Carolina, or west virginia for multifamily cause they are all reasonably priced. Id much prefer to invest closer to home if you had any insight to help me get my first investment property.

    0Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Theresa Harris That makes perfect sense, I have been looking for out of state properties for that reason. Jusyt trying to find my market, I guess I get too caught up in making sure I'm doing everything right just because I am a new parent and can't afford to big of a loss.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Lane Kawaoka:

    I live in Hawaii and rent. That is what makes sense in any primary market where the RV ratios are such.

    I also own 4200 rentals too... it works. That is you want to make one of the biggest financial mistakes young couples make.

    I could be wrong but i think Brandon Turner owns his primary on Maui.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    5y

    @John Brooks if/when we do it will be a house hack. Ideally, a house that we can occupy with another unit or two that we can rent out (possibly STR for maximum revenue) or possibly a duplex/tri/quad. We need to lower the cost/door for it to make sense and so others can help us pay off the mortgage. Need to get creative in an expensive market to make it work. If I was young and single I would buy a house with lots of bedrooms and rent them out.

    1Reply
  • Antonio CuccinielloPro Member
    Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes
    5y

    It's hard to say what is best without knowing an individuals situation.

    Renting where you live but owning rental properties is a strategy that allows people to not have to tie up a bunch of money in where they live and give them flexibility to move.

    Owning where you live is a decision you must make if you are ok with putting the money in for a down payment and not get a return (or as high of a return) for a while.

    For me, the ability to generate more and more cash is the goal. So owning where you live might go against that goal

    732-402-6988
    1Reply
  • Chris Pasternak
    Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes
    5y

    Are you getting married?  You said you would rather house hack yet you're not because you have a girlfriend.

    2Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Antonio Cucciniello yeah I agree, rent prices here were about the same as a mortgage. so I bought cause I got tired of making someone else money and the interest rates seemed right. Its hard to find a rental in the bay area of CA. I did just find I have enough for another down payment for a rental out of state so let's hope this works ahah.

    0Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Chris Pasternak im not married, but I do have a son with her and would like to try not to pay the child support in the future. Just because I purchased a SF doesn't mean I cant still do it. I talked to her about renting a room and its already going to make my mortgage less than what it was when I was renting a smaller home. I think what I was trying to say and badly represented was that I would love to house hack, but when it comes to my family's living space the decision becomes more than just what I want. And becomes a discussion of what is best for our son, and another individual especially during covid. (weather you believe it or not) a duplex would be ideal but renting a room in a house still works great if its with the right people its just the process of finding that individual. But I do appreciate your question and time in this, im always open for a discussion. Im sure you could provide a different fresh perspective into this

    0Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Chris Pasternak im not married, but I do have a son with her and would like to try not to pay the child support in the future. Just because I purchased a SF doesn't mean I cant still do it. I talked to her about renting a room and its already going to make my mortgage less than what it was when I was renting a smaller home. I think what I was trying to say and badly represented was that I would love to house hack, but when it comes to my family's living space the decision becomes more than just what I want. And becomes a discussion of what is best for our son, and another individual especially during covid. (weather you believe it or not) a duplex would be ideal but renting a room in a house still works great if its with the right people its just the process of finding that individual. But I do appreciate your question and time in this, im always open for a discussion. Im sure you could provide a different fresh perspective into this

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    John....are you asking for yourself? Or for this friend you are talking about? 

    As a Realtor, the forst thing I always tell people while they are doing their analysis is to get pre-approved with a lender, so tell your friend that's what they should do first. If they don't lnow who to reach out to rearding pre-approval, they can proba bly reach out to the person you got your mortgage throught and if not...I know of some other lenders.

    Regarding House Hacking............it can be done, IF EVERYONE is on board. If you aren't able to convince your girlfriend how this will benefit you folks then it's dead before you start. Househacking will give you folks extra income so you can spend more time with each other. It should not mean you will have that extra income to spend on frivolous things and doo dads because you want to be a PAW (Prodigous Accumulator of Wealth) not a UAW (Underaccumulator of Wealth). If she can understand you will not spend the extra money from the househack on a 2021 Cadillac Escalade and a trip to Tahiti next year, but you want to teach your son about wealth then that certainly can't hurt. 

    As for your concerns about Covid....that is certainly legit.....but if you thoroughly screen your future tenant and have everything in writing that certainly helps. Believe me....people have NOT stopped househacking because of Covid.

    1Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    5y

    @John Brooks For most of the population, here is my advice.....  I would 100% suggest buying your own property first prior to a rental.  This of course assumes that is it not cheaper to rent in your market.  The key to this however is to (1) buy significantly less than what you are "qualified" for and (2) buy something that you can add value to (house hack, duplex, rehab, growth/preciation area, etc.).  You are the only tenant you are going to be able to completely trust... :)

    It is important that you buy something less than what you are "qualified for," so you can snowball income for your investments.  Otherwise you will end up like many people who buy at the top of their budget and become house poor.

    Getting a value add property is also a necessity.  There are tons of ways to to this, but you need to make sure you have an edge on the property you are buying and not just buying something for full retail that you like.  Get creative.  

    For your market, I would perhaps suggest waiting a little bit to see how things pan out.  Although I'm not an expert in that market, I have heard that rents (urban areas) are dropping rather significantly.  This will probably lead to quite a few top tick investors that will be tomorrows distressed landlords.  That could give you an entry into that market.

    3Reply
  • Account Closed
    Real Estate Agent · Eustis, FL · Member since 2013 · 109 posts · 31 votes
    5y

    @John Brooks

    I have done both. I actually started like you, but wanted to start with a rental unit first. At the time, before I bought the home, I had been renting and moving every year to keep saving for that down payment. Until one day, I asked my daughter if she was going to go outside to make new friends. She said, “What for, we are just going to move next year.”

    That hit me hard. So I took the money I was saving and bought a home in an up and coming area in Florida (Winter Garden). I spent the next 3 years training my family on the concept of living in one unit and renting out the rest. We sold the home after 3 years and bought a quadplex. We are currently living in a 2/2 (downsized from a 4/2) and renting out the rest while building a new home in a different city. I say that to say; once we move out of the quad, the rents will pay for both mortgages.

    I found a GC that will build at my price and we will have enough equity in both properties to buy another rental after we refinance. My advice to you is start playing investment podcast or books when you are in the car with the family. Some of it will stick.

    3Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @William Jenkins so first id like to say thank you for replying to this post and offering your knowledge.

    So I already purchased my home and can't really back track, but everything you are saying I can agree with. I bought my house for less than it appraised for, about 30k under what it would sell for in this market.

    As for my area, San Francisco and Oakland rent dropped but the more inland areas are still high and continues to grow due to the people leaving the heart of the bay area.

    I do like that you said the only tenant you can trust comment.

    I hope to be investing soon just running all my numbers I bought my house and have spare cash for another down payment

    0Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Brian Garlington this started out because I had purchased my home and had some doubts I was starting out wrong. My coworker was going to gain his passive income and it felt as if I was still stationary. I know see that I am not just different avenues of approach.

    As for a lender I used a VA loan for my first purchas so I could save as much cash to buy another property.

    As for everything else I really appreciate your input. Its a constant conversation with her about money because she doesn't understand money. She doesn't share the entrepreneur mindset, I got her to agree to the roomate so baby steps to be able to show her that money can work for us. I am still looking for investment properties and will purchase if a deal is right.

    0Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Dennis Williams thank you for your story I completely understand that struggle.

    I started listening to the BP podcast from episode one and I plan on finishing all of them.i listen to it on the way too and from work and while I work. I've also been listening to some YouTube personalities, and talking with other investors and future investors.

    Keep pushing im glad you and your family are doing great. Id love to hear new updates.

    1Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @John Brooks    If she is open to a roomate then half the battle is already won. 

    Congrats on using the VA Loan. Like you, I am a veteran and have used it more than once.

    You can use the VA Loan more than once by the way. Each time I have used the VA Loan I have been pleasntly surprised at how many VA Lenders reach out to me within weeks or even days after the property closes and they say they can refi me to a lower rate.

    The VA Loan people do NOT like it if they know you want to use the VA Loan program to build a rental property portfolio so never tell them that's what you want to do. What I have "heard of" people doing is refinancing out of the VA Loan into a conventional loan, and then telling the VA Lender that, "The area they are living in has changed quite a bit and I don't feel safe for my child here anymore" or "You need to move to be closer to family or you need to be in a different (I didn't say better, I simply said different) school district"...etc.

    We've helped people because there's lots of options out there.

    1Reply
  • Rigo V.
    Investor · Morris Plains, NJ · Member since 2017 · 294 posts · 47 votes
    5y

    depends on your situation and goals. I wish i had house hacked a multi family

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free