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

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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.

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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.

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  • Ken NyczajPro Member
    Investor · Grasonville, MD · Member since 2017 · 453 posts · 415 votes
    5y

    @John Brooks do both and house hack if you are going the rental route, buy a duplex or triplex or fourplex, use FHA and put low money down and live for free.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    I'm in a medium expensive market with a family and I 'househack'

    Not all househacks involve having a roommate or bachelor lifestyle in some plex.  MIL apts, ADUs, Casitas, carriage houses. 

    Lots of ways for rental income with a primary in the luxury househack space. 

    2Reply
  • Guido Nunez
    Investor · Los Angeles, CA · Member since 2019 · 38 posts · 22 votes
    5y

    @John Brooks Rental first. My first purchase was a rental property. After flipping several times, I had more than enough to buy my personal home and a rental home.

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    5y

    I get this question all the time. If I could go back in time, I would have: bought a duplex/triplex that needed value-add (a wreck). Lived in the smallest/crappiest unit, fixed the others, got them rented out, fixed mine while I was living there, when it was fixed moved into my van by the river, rented it out, bought another, rinse, repeat until I had enough cash flow coming in equivalent to my W2, and then perhaps bought my personal home. I would not have bought my personal home first unless it had options to create income beyond having people living within my same walls; I was in the military and I'm not having any knuckleheads living in my direct house. Above me in an apartment or over the garage, sure, but not in the bedroom next door.

    I lost a lot of time and income not thinking that way from the beginning. But I didn't have any kind of knowledge or background that lent itself to thinking of RE as a vehicle for wealth creation. 

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  • Michael Barnett
    Flipper/Rehabber · Durham, CT · Member since 2020 · 15 posts · 2 votes
    5y

    @John Brooks i believe it all depends on your situation if you single or have a family

    0Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @John Brooks Why ask the question after you already purchased your home? If you believe real estate is a great way to build wealth and you already purchased your own home, then focus on purchasing your first rental. 

    It doesn't matter which is first. Define your goals. Set your criteria. Run the numbers. Take action 

    3Reply
  • Alexander Szikla
    Real Estate Agent · New York City · Member since 2020 · 820 posts · 641 votes
    5y

    Why not do both with an FHA? Find a 3-4 unit property. You will get synergies on the tax bill, insurance, etc.

    0Reply
  • Shiva Bhaskar
    Investor · Los Angeles, CA · Member since 2017 · 523 posts · 476 votes
    5y

    I think the answer varies for all. For me, I don't married and/or have kids yet. I plan to someday. When that happens, I think having a home we own would be top priority. 

    Right now, purchasing rentals to grow wealth and cash flow with makes more sense. I am sure there are folks who are married but rent and focus on investing (doesn't Grant Cardone always say that)? 

    I have never been a fan of the whole "think of your house as an investment" argument. I think a house in the right place can be a great source of wealth, but in my view, a real estate investment must generate income. So, buying a home to live in is something we should do for comfort, or our families, but really, not because of investment potential. 

    1Reply
  • William Ford
    Member since 2019 · 10 posts · 2 votes
    5y

    @Nick Barlow I have a question - what is the real difference between a cash out refinance and a HELOC? With a cash out refinance, your basically taking the cash (let's say 30 grand) and then they 30 grand gets added to your mortgage. Or, a HELOC is a 2nd mortgage basically but a line of credit where you can take money and pay interest but can pay it back right?

    I guess my question is what's the pros/cons of HELOC or cash out refi.

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

    @Jon Kelly I ask the question because I tend to be someone who analyzes everything. And even after I purchased my home I re-analyzed my.own decisions. I also ask because I can pass on the knowledge I get from here.

    But I appreciate the thought and time, I do plan on buying a rental soon.

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

    @JD Martin firstly from onw veteran to another thank you for your service.

    I agree with not wanting to live with others because of the things I have seen in the barracks. If I was a single man I would totally do what you were saying, live in a van down by the river and gain all the income.

    1Reply
  • John Brooks
    OP
    Brentwood, CA · Member since 2020 · 20 posts · 15 votes
    5y

    @Michael Barnett I agree to that, I also feel It depends on what your family is willing to work with. What are they willing to work with?

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

    @Shiva Bhaskar I agree, my GF isn't one to really understand money or politics, so that's kind of my role in the house. We also have a son so her attention and focus is on him. So I ask these questions being the one doing all the leg work, I want to get ahead for them and show her how great real estate is.

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes
    5y
    Originally posted by @John Brooks:

    @JD Martin firstly from onw veteran to another thank you for your service.

    I agree with not wanting to live with others because of the things I have seen in the barracks. If I was a single man I would totally do what you were saying, live in a van down by the river and gain all the income.

     Yeah, it's a little harder to convince a wife to do that too!

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  • Michael Barnett
    Flipper/Rehabber · Durham, CT · Member since 2020 · 15 posts · 2 votes
    5y
    Originally posted by @John Brooks:

    @Michael Barnett I agree to that, I also feel It depends on what your family is willing to work with. What are they willing to work with?

    @johnbrooks as for me my family wants to be settle in our first home then u can go and invest into real estate 

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

    @JD Martin yup, especially when kids are involved. I got her to at least work with me on a roomate so thats a start.

    0Reply
  • Samara HuntleyPro Member
    Investor · Charlotte, NC · Member since 2020 · 124 posts · 189 votes
    5y

    @John Brooks depends on your situation. Both are beneficial in their different ways.

    Why not do both though? But your first primary residence and house hack or buy a duplex. Then you get the best of both worlds with actually getting to have your own home but still have someone else paying off the mortgage.

    I know it’s hard to get spouses on board with house hacking but explain the amazing opportunities it could allow in the future if you sacrificed just a little right now.

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

    @Michael Barnett thats is where we are at as well. I just happen to have enough saved up to potentially buy a rental

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

    @Samara Huntley I got her on board with a roomate which is a start. I worked this purchas just right to where I have a down payment left over to buy a rental, so I may be able to make this happen.

    0Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    5y

    @Shiva Bhaskar - I understand where you are coming from on the house as an investment theme, but I have to somewhat disagree.  The bottom line is that you have to live somewhere, so you can either pay rent or a mortgage.  An owner occupied home will not cash flow in the traditional sense, but it sure does when you consider that you will be paying x per month either way.  With owning you will at least get the principal pay down, 30 year fixed payment (as opposed to rent increases), tax advantages, and appreciation that comes with owning.  I guarantee you that you will be your own best tenant!

    The issue with a home as an investment motto is when people use this an excuse to overbuy or purchase a home that they otherwise shouldn't..... Its the typical "Hey we qualified for $350k so lets go start looking for $400k homes (insert any price range)...  its in investment after all!"  The other issue is when people buy knowing that their living situation is going to change and they will need to sell it is a relative short time frame.  

    My current primary was an excellent investment.  In 2017 I purchased a property that needed rehab and turned it into EXACTLY what I wanted (kitchens, baths, flooring, EVERYTHING).  I bought a good enough deal where I could have sold it for 25% more than what I had into it at the time.  That spread has grown significantly since.  Not that I plan on moving, but that profit is now tax free (2 years on primary).  I would call that a pretty good investment!  BTW... I did the same with my primary before that as well.  It took discipline waiting for the right deals to come along.  

    1Reply
  • Tucker Cummings
    Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
    5y

    @John Brooks if house hacking isn't an option, I recommend using any down payment money you would use for a primary on a rental. Then you can use the cash flow from the rental to start your investing, and eventually get your rentals to pay for your liabilities (aka your house). 

    With the rental, any equity build up you'd get by owning a home would be paid for by someone else.

    0Reply
  • Kyle Parks
    Rental Property Investor · Lakewood, OH · Member since 2016 · 119 posts · 156 votes
    5y

    @John Brooks

    Why not both?

    Get a double. Living upstairs as someone downstairs pays your mortgage is a great feeling

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

    @Tucker Cummings that's the plan, im working on finding my niche. Im just searching for numbers that work at the moment. And in this market I want to make sure I am not over buying.

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

    @Kyle Parks i have already purchased my home. I was more over analyzing my purchase, and was having doubts I did it right. But im seeing how i can turn this purchase into some passive income.

    0Reply
  • Jacob Mueller
    Real Estate Broker · Colorado Springs, CO · Member since 2014 · 47 posts · 12 votes
    5y

    You might consider a single family with lots of bedrooms because you can put a lot less cash down. That's how I started

    0Reply
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