First-time home buyer: buy for myself or investment?

14 Replies

Hey community,

As the title states, I am a first-time home buyer in Atlanta. My goal is to generate another revenue stream aside from my full-time job, so in the future I'd rent out the property instead of living there myself.
My question is this: since my apartment lease ends on November 30th so I will also need a place to stay, which of the following options would be the best first move in order to generate income/build wealth?
I've been pre-approved for a $300K loan and am seeing that few properties generate incremental cash flow if I also live there during the first year:

- Purchase 2+ BR home and rent out while I also live on-property; move out after a year
- Purchase a home for myself (i.e. a condo - I know I know, condos have terrible ROI but I personally like the look/feel)
- Keep renting 

As this is Week 2 of my real estate venture, any feedback/insight would be incredibly appreciated.
Thank you for reading!

Updated about 1 month ago

Forgot to mention - would it be better to delay home purchase? I have sufficient funds for down payment, but not 10% of listing price in immediate savings.

@Katie Han

My personal thoughts about this are to buy a affordable home rent out a room or basement (depending on the home and how much you are willing to give up)

(Multi units are also great in some areas!)

My reson for my thought is because I'm trying to play a long term game here and this being my first home I want to bring in some cash flow and sacrifice my pleasure now of owning a home to myself that I will eventually have enough cash flow and enough equity built into my property/properties so I can be set financially free.

But it all does depend on your situation and your goals of course

@Katie Han

Welcome to BiggerPockets this is the place you need to be if you want to start you real estate journey. So my thoughts are why not "House-hack" that seems like the perfect fit for you at the moment. You would be able to get into a multi-family house for 3.5% down FHA loan and possibly cashflow. Depending on your comfortability you could rent out extra rooms you have to make more cashflow. Even if you don't cashflow you are most likely not paying anything close to what you would be paying buying a condo strictly for yourself or your current rent.

Make sure if you do go the house hack route run the numbers to make sure when you leave the property will cashflow.

You have a great opportunity in front of you if you use it right you will be able to generate passive income and build wealth.

I am in yhe same boat. If you can qualify for a mortgage I'd buy a property. If you are going to go the FHA route you could house hack like you mentioned and cover part of your mortgage. I personally love that idea. Why pay a landlords mortgage, when you can put equity into your own property? You have the right idea. Plus, im pretty sure if you needed to move before a year you'd be fine. You don't have to refinance or anything. I know there are rules with lenders, but for the most part, as long as the note is performing, you should be alright. Don't take my word 100% though. Im planning on two properties next year and am going to go the same route with an fha loan, but I am looking at duplexes. Anyways, this is about you and I was excited to read your post as its a goal of mine as well to get into my first property in the near future. Good luck!

@Joey Critch @Allen McGlashing @Blake Dennis

Thank you guys for getting back to me! 
The goal is to house hack, but I don't have $10K+ in cash immediately available to purchase the house and also buy furniture/set up the rental rooms -
So, my current plan is to move in first, get settled, and then once cash flow increases a bit, buy furniture for the rooms.

I've read that one should aim to have between 10%-20% in cash after purchasing in case of emergencies so I've been getting cold feet, but at this time think that the path ahead is still the way to go.

Good luck to you on your endeavors - keep us posted!

@Katie Han FHA is 3 % down, there may also be some state programs you qualify for as a first time buyer. You do not need to buy furniture for rental rooms, people can bring their own. The only reason to furnish is if you do short or medium term rentals. There are also furniture rental companies, consignment shops. It sounds to me like you might be too tight on budget to buy a house now and might be better with the predictable condo cost.

@Katie Han

I agree with what others have said, house hack as many units as possible in your area (up to 4 for FHA/conventional). Get an FHA loan for 3.5% down or, if you feel comfortable and can save a reasonable amount, get a 5% down conventional loan. A mortgage broker can help you find a suitable option if your current lender wants more than 5% down. Ideally, you'll have a solid inspection and get anything potentially major taken care of before you close. Then you have less risk of something major happening right after closing. Of course, you should have some cash reserves or at least a way to float a decent amount of credit in case a newer water heater goes out or something. Even if you don't immediately have a lot in the bank for reserves, you'll quickly save much more money by having others paying your mortgage and saving what you used to spend on rent. Just be sure to set aside money and not go out and spend it. Keep lifestyle expenses down and savings rate up, especially if you want to continue to invest in real estate in the next couple of years.

The best advice I have is, don't wait, buy real estate!

@Katie Han definitely househack for your 1st home, I did the same thing!

I purchased a duplex for 3.5% down FHA loan, I live on one side and rent out the other.. You do not need to furnish Anything but stove -refrigerator- And maybe dishwasher , They could bring all the rest of their furniture including Washer/ dryer

I will let you know it is nearly impossible to find a how to house hacking duplex that will cash flow while you are

occupying the premises/ Living in the other side .. The goal is to get the tenant cover a big majority of your mortgage That way you're only coming out of pocket 3-4 $500 a month to cover the rest of the mortgage and when you move out as long as it cash flows your good. house hacking is the best way too go to build wealth for sure 👍

@Christopher Gathe

Helpful to hear about the less-than-ideal cash flow while also occupying the residence -
That being said, would you be open to sharing how you've gauged whether a property is a good fit for you if your CoC ROI is low your first year, but will return healthy positive cash flow once you move out?

So far people have told me that even if my goal is to use as rental, I should focus on whether I like the property/if I can see myself living there so was curious how you navigated -
Thank you for your feedback!

I would suggest buying a home to live in and renting out a room. Then in a year+ (has to be at least a year that you owner occupy) buying a new house to live in and turning the first one into investment. This is a great way to build your portfolio. 

Originally posted by @Katie Han :

@Christopher Gathe

Helpful to hear about the less-than-ideal cash flow while also occupying the residence -
That being said, would you be open to sharing how you've gauged whether a property is a good fit for you if your CoC ROI is low your first year, but will return healthy positive cash flow once you move out?

So far people have told me that even if my goal is to use as rental, I should focus on whether I like the property/if I can see myself living there so was curious how you navigated -
Thank you for your feedback!

Words of advice coming from the same situation you were in, As a first time home buyer it's easy to get attached to your 1st home purchase, But don't! I found me and my wife were being too picky and I had to keep telling myself this is not our forever single family home but it is an( investment property) In my situation I was renting just like you, So even if my 1st investment properly that I would be house hacking didn't cash flow I would be OK with that being that the renter would be supplementing my income , Would leave me paying Say $800 a month to cover my mortgage that's still a whole lot better than the $1500 I was throwing away for rent....

Now before you purchase anything you need to run the numbers through a rental calculator, Is and account for all of your overhead mortgage/expenses/ Taxes/Insurance there is a calculator on bigger pockets, That breaks everything down although I didn't use that 1 when I analyzed my property I used a different one at the time.

I will give you some numbers for my property to give you a better understanding my my mortgage payment on my duplex is 1880 a month that includes mortgage/taxes/insurance

I was able to raise the rents to 1400 a month because they were away under market when I purchased... That leaves me paying 480 a month for housing, The unit we are occupiing is a 2 bedroom 1 bath... Although it's not ideal for a family of my size We're currently sticking out for investment purposes only. We remodeled the one we're staying in now, We probably will move out and move to the other side in one year and remodel that one I can rent my unit out for 1650 + If I make both units equally as nice which I plan on doing as you can tell from the numbers the duplex will cash flow substantially when I move out 1k plus per month After all Debts /expenses are covered... to be honest when I analyzed this property it turned out better than I even planned because after I purchased the market pretty much blew up in my location and rents increased Up to 50% Don't forget when you run the numbers run the numbers as if you're not living in it and you are renting out both sides that way you know what the outcome will be when you move out,  

In my situation the cash on cash return is  78% with return on investment  being 122% Which is insane for my 1st deal! I hope this helps you let me know if I can answer any more questions

A duplex with a 3.5% FHA loan would be a great option for you. You can potentially count 75% of the appraised rent to help with your debt to income ratio, potentially qualifying you for a larger amount (if you can come up with the down payment). You potentially could qualify for down payment assistance or the down payment can be gifted. You would then get a large portion of the mortgage covered, which would most likely greatly reduce your housing expense. Plus, a portion of the mortgage payment is going toward principal reduction, so your tenant is helping you pay down that debt every month. I would talk with your lender about FHA loans and then find a cash flowing property. Good luck!

@Jennifer Beeston @Christopher Gathe @Brandon Myking @Sarah Blesse

I ventured into this forum late one night after feeling overwhelmed by which route I should take or if I should just not purchase at all -
Wow, thank you everyone for your thoughtful feedback/responses!

It sounds like overall sentiment is to house hack with either a condo/townhouse/SFH (duplexes are unfortunately hard to find), so long as overall property generates healthy cash flow after I leave -
Will keep searching for one that's a good fit for me and the numbers. 

Again, really really appreciate everyone's responses and support -
Thank you for your help!!

Katie - I concur with what others have already said - House Hacking is the way to go in your current situation. Just continue your real estate education to become comfortable with being a landlord and managing your rental. I recommend building a “success library” of books and listening to podcasts.

When asked if they wished they had done anything differently along the way, most (older) successful real estate investors lament “I wish I had starter sooner” or “I wish I had bought more”.

If you are in it for the long haul (20+ years), real estate can be very forgiving. Heck, with appreciation over 10% even those who sell in just a few years are doing well….but I prefer to buy and hold for the long haul.

I wish you the best of luck in your future endeavors.