Buy home + spend all savings OR rent apartment + keep savings?

Question

I'm currently renting and recognize that my money is better spent going towards an asset. I have a modest amount of money saved up that, if paired with an FHA loan, could land me a home here in Austin, TX!

My dilemma: Doing so would require spending all my savings which are in an IRA, wiping out my principal investments along with any gains.

My question to y'all: Is it worth spending everything I have so that my living expenses are at least going towards an asset while I recuperate my savings OR is it better to continue renting and use the money towards my first rental property, either immediately or in the nearer future?Note: I originally intended on house hacking via multi-family properties but have concluded this isn't the strategy for me.

Joe Evans · Answer

@Timothy Douglas I don't get by! Which leans me towards buying a home regardless of the financial implications, although it seems it would also benefit me financially even if it were my primary residence. Assuming I buy right!@Tom Wagner I like that take! I'll make sure I factor those numbers in when I make the leap.@Jordan Moorhead Right. My music relies on having the space to make it and renting doesn't cut it. Although a primary residence would be the most accommodating for music, @Timothy Douglas might be onto something with the soundproofing. Will need to factor that into budget!

@Andrew Powers I produce electronic music, primarily in the house genres.

@Rick Reeder Thanks for the suggestion! Sounds like you and @Tom Wagner are recommending I buy as long as I'm smart about it.

This has been incredibly helpful everyone. I have more to think about and have regained confidence in the process!

Jordan Moorhead · Answer

@Joe Evans buy a single family with an ADU or a duplex with a garage? There's a way to make this happen. Either way you need to buy something or you're going to have trouble making music in a rental. A househack will give you more freedom to make music since you won't have to worry about money as much.

Timothy Douglas · Answer

I guess my question is how do you get by in your apartment without disturbing other people? Also, there may be ways to outfit a specific room in your house that allows for you to be loud and not disturb others. HomeAdvisor told me it would be around 1,000-2,500 dollars to do it, but I don't know much else about it. It might be worth getting into a house hack and soundproofing a room. Why not build wealth in Real Estate and pursue your dream?

Antonio Cucciniello · Answer

Hey @Joe Evans is it possible for you to live in the single family and rent out the bedrooms?

I just moved to Austin and looking to do this strategy myself.

Rick Reeder · Answer

If you're willing to look a bit farther out (Liberty Hill, e.g.) you could find a new home that qualifies for USDA which can be 0% down.  I read "Beat the Street" by Peter Lynch back in the 90s (yes - I'm old), and he recommended home ownership as one of your first investments.  It's the way most Americans build wealth.  I'm a huge believer in buying vs. renting.

Tom Wagner · Answer

For me, if you're buying a house that will rent for more than PITI + repairs + vacancy after you move out --> you are buying an asset! If not, you are buying a potential liability. In Austin, if you're breaking even on cash flow I'd even consider that an asset, given the direction of the city.

Andrew Powers · Answer

Yes look at room renting in a single family. Low down payment loan option is 3% conventional first time home buyer loan (single family only). If you don't want roommates you can target a mother in law suite property or something similar.

Either way make sure you analyze the property including cap ex, repair, vacancy reserves. And have "adequate" cash reserves for unexpected issues.

Jordan Moorhead · Answer

@Joe Evans just curious, why is househacking not for you?

Jacob Pereira · Answer

@Joe Evans, it sounds like your savings are already going toward an appreciating asset, albeit not a leveraged one. If you liquidate your IRA now you'll have to pay the income tax on it plus possibly the penalty (there are some exceptions for COVID). I'm a huge proponent of real estate as an avenue to financial freedom, but it's also capital intensive, so getting into your first property without savings is generally not such a good idea.

Let me ask you this, though; what makes you so sure that your first property will entirely wipe out your savings? Is there an opportunity to buy something slightly cheaper or to put less down so you still have reserves and/or don't have to raid tax-advantaged accounts?

Ali Boone · Answer

I always vote the latter-- rent while you buy a rental property. Buying your own home isn't an asset.

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

Also depleting your savings, is risky. But run the numbers on buying a house for yourself and you'll see why it may not be very advantageous.

Buy home + spend all savings OR rent apartment + keep savings?

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