Should I buy or rent or invest?
Hello All,
I am new to this forum and hoping to get some advice from you.
I am not a first time home buyer.
I am moving to Atlanta, GA and hoping to live there for a long time unless I really do not like the place and wants to move back to Illinois. I have some amount that I can use for the downpayment. So here are few options that I have and I am finding difficult to choose:
Option 1 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta that I want to buy, I can instead buy a studio or a small 1 bed in Chicago. No mortgage needed. Will have to pay higher taxes and HOA but will be able to get ROI of 3 to 4% PLUS will be building an asset. Meanwhile, rent a house in Atlanta for 1 year with the hope that market will cool off and mortgage rate might do down.
Option 2 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta, buy a townhome in Atlanta immediately and move. Rent the townhome after couple of years and then try to buy a bigger house.
Option 3 : Sell my current home in IL. I will lose the good mortgage rate on the current home. Use the money to buy a house in Atlanta. This money won't be sufficient, so with the high mortgage rate and competitive housing market, buy a townhome or a house.
Do you think any other option will be better?
@Tiya Khambadkone option 4...
Rent your current home here in IL, buy another investment property here in IL with cash, AND buy a primary home in ATL with just 5% down.
Assuming you have the funds for all that. Seems like you should based on your post, or very close.
That's your best outcome. 3 properties instead of 1 or 2. No need to tippy toe into investing, jump in, and in hindsight later on you will be glad you did.
Best of luck!
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If you aren't sure whether or not you will like living in Atlanta, then I would rent out your house in Illinois and rent for a year in Atlanta. If you decide you like the area and want to invest, then try to house hack in Atlanta after a year to begin building your portfolio there. Build your real estate team in Atlanta over the year so you have a solid base to expand with in Atlanta and will have the option to turn any properties you do purchase over to a management team if you decide you want to leave Atlanta down the road. If you decide you aren't interested in the area, then you can move back to your house in Illinois and target building your real estate portfolio there instead.
@Zack Karp Although option 4 seems great, is it taking into consideration we are at the peak of housing prices and mortgage rates are high as well? Is it a good time right now to be a mortgage borrower for 2 properties?
@Konstantin Ginzburg This is a safer option. I understand renting for a year will give flexibility. But what about the downpayment money that I have? Should I buy a small condo in Chicago?
Also, if we rent, we will be paying probably $30k in rent for a year that would have been used towards an investment property. A property that we may rent in the future if we want to leave Atlanta.
What do you think?
Quote from @Tiya Khambadkone:
@Zack Karp Although option 4 seems great, is it taking into consideration we are at the peak of housing prices and mortgage rates are high as well? Is it a good time right now to be a mortgage borrower for 2 properties?
Housing prices are still slowly heating back up from the leveling we had in the past year. The rates are high; however, this is the time when you can jump on an opportunity that is hitting you in when the time is right! For instance, buying that primary with lower down, getting some cash back to close to buy down the rate a bit, or buy down the rate and money to cover closing costs. For 3.5% down you can get up to 6% in closing costs credits from seller/repairs of total house price. So $6K for $100,000 house.
I would use this time for your advantage!
Quote from @Tiya Khambadkone:
@Konstantin Ginzburg This is a safer option. I understand renting for a year will give flexibility. But what about the downpayment money that I have? Should I buy a small condo in Chicago?
Also, if we rent, we will be paying probably $30k in rent for a year that would have been used towards an investment property. A property that we may rent in the future if we want to leave Atlanta.
What do you think?
That is more of a person choice. If you are viewing this purely by the numbers, then house hacking in Atlanta would likely be the top choice to go with since you would jump start your investing career while mitigating your living expenses by having tenants pay your mortgage if you find the right property. That being said, you do give up flexibility by going that route so it may be more difficult for you to leave the area if you decide you don't like it, that property might be a anchor tying you to the area that you will need to consider. You could get a property manager in that case but it will still be something that will prevent you from making a clean break from Atlanta. I would choose where you want to live for the next 3-5 years and save your down payment to buy a house hack in that area. If you need a year to make that choice, then renting will buy you that time. If you feel fairly confident that Atlanta is where you want to live, then use the downpayment to get a house hack there. Either way, its a personal choice so there is no right or wrong answer. It comes purely down to your personal priorities and figuring out which choice brings you closest to your goals.
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If you think you will spend $30K on rent in Atlanta, why not buy an investment property down there that you will live in for 1 year? After a year, decide if you will move back to the house in IL or buy a permanent home in Atlanta. You can then use the Atlanta investment property as a rental.
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@Tiya Khambadkone what makes you think we are at a peak for housing prices? If rates drop, then prices will spike up fast. We are in a strong sellers market with 7% rates only a year after 3.5-4% rates. I list a lot of homes here in the Chicago market, and all of my sellers are getting strong pricing despite the headwinds of high rates.
@John Warren I think we are at the peak (peak till date) because from what I see especially in Chicago and Atlanta's metro area, the prices were not this high even in 2021 and 2022. Apparently, it is a highly competitive market in both places.
@Theresa Harris That sounds like a great idea.
Any thoughts on - how buyers (especially the ones with young school-going kids) buy a property in 1 state while living in a different state? Should we go for some furnished short-term rental and keep our stuff in storage till then? How does that work with the schools? sorry for such naive questions
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Quote from @Tiya Khambadkone:
@Theresa Harris That sounds like a great idea.
Any thoughts on - how buyers (especially the ones with young school-going kids) buy a property in 1 state while living in a different state? Should we go for some furnished short-term rental and keep our stuff in storage till then? How does that work with the schools? sorry for such naive questions
Do your research on where to buy, prices, etc. Talk to your bank to find out how much you can borrow-explain you are moving and want to keep your current home and use it as a rental. Once you know your budget and target area, find a local realtor and line up showings for one weekend. then make a trip down there and put an offer in.
As for moving, same as you normally would do-pack up your stuff and move it to Atlanta. No point leaving stuff behind as it is better to rent your current home unfurnished.
Quote from @Zack Karp:
@Tiya Khambadkone option 4...
Rent your current home here in IL, buy another investment property here in IL with cash, AND buy a primary home in ATL with just 5% down.
Assuming you have the funds for all that. Seems like you should based on your post, or very close.
That's your best outcome. 3 properties instead of 1 or 2. No need to tippy toe into investing, jump in, and in hindsight later on you will be glad you did.
Best of luck!
One question I have whenever I see advice like this is why are we not asking about the person's income? 5% down only works if you're making great money.
Quote from @Tiya Khambadkone:
Hello All,
I am new to this forum and hoping to get some advice from you.
I am not a first time home buyer.
I am moving to Atlanta, GA and hoping to live there for a long time unless I really do not like the place and wants to move back to Illinois. I have some amount that I can use for the downpayment. So here are few options that I have and I am finding difficult to choose:
Option 1 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta that I want to buy, I can instead buy a studio or a small 1 bed in Chicago. No mortgage needed. Will have to pay higher taxes and HOA but will be able to get ROI of 3 to 4% PLUS will be building an asset. Meanwhile, rent a house in Atlanta for 1 year with the hope that market will cool off and mortgage rate might do down.
Option 2 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta, buy a townhome in Atlanta immediately and move. Rent the townhome after couple of years and then try to buy a bigger house.
Option 3 : Sell my current home in IL. I will lose the good mortgage rate on the current home. Use the money to buy a house in Atlanta. This money won't be sufficient, so with the high mortgage rate and competitive housing market, buy a townhome or a house.
Do you think any other option will be better?
Of those options, I think #2 is the best. It gives you the flexibility to move back to Illinois if you really don't like Atlanta, you're getting cash flow & keeping your low rate mortgage, and you're getting a primary residence/future investment property in Atlanta. But, #2 does have drawbacks. You'll become an out of state landlord and want to hire a property manager, which you may or may not like.
#3 makes sense if you can put your equity into something better in Atlanta, but it sounds like that isn't very probable for you.
I don't recommend #1 at all. I generally don't think condos are great investment properties due to high HOAs, possibility of mismanagement/special assessments, rules & regulations, and from what I've seen they don't cash flow well. I also don't think renting in Atlanta "hoping the market will cool off" is a valid strategy. What would be your definition for "the market has cooled" or what mortgage rate would give you the green light? That would be taking your investing strategy and putting it in the hands of "the market".
To your point about housing prices being at "the peak", that would imply that you know where home prices are going. Home prices have dropped in different markets around the country, some more than others, but the thing is nationwide we are still very under-built and need more homes. Millennials NEED homes which is why demand is still strong in many markets like Chicago which @John Warren alluded to.
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Quote from @Peter Mckernan:
Quote from @Tiya Khambadkone:
@Zack Karp Although option 4 seems great, is it taking into consideration we are at the peak of housing prices and mortgage rates are high as well? Is it a good time right now to be a mortgage borrower for 2 properties?
Housing prices are still slowly heating back up from the leveling we had in the past year. The rates are high; however, this is the time when you can jump on an opportunity that is hitting you in when the time is right! For instance, buying that primary with lower down, getting some cash back to close to buy down the rate a bit, or buy down the rate and money to cover closing costs. For 3.5% down you can get up to 6% in closing costs credits from seller/repairs of total house price. So $6K for $100,000 house.
I would use this time for your advantage!
yep, for me the best answer would be buying multiple properties in the place where you live. If you live in ATL you buy 1 OO in ATL and two rentals in ATL.
Why bother with Chicago with exorbitnt property taxes there.. if you move simply sell, that's it.
Are you looking for a great real estate opportunity in Houston, Texas? Now is the time to take advantage of it! With housing prices slowly heating back up and high rates, you can seize this moment to get yourself an incredible deal. You could buy that primary with a lower down or get money back to close with the option of buying down the rate or covering closing costs. For 3.5% down, you can receive up to 6% in closing costs credits from seller/repairs depending on the total house price. So $6K for a $100,000 house - now that's an incredible offer! Don't let this chance pass you by! Take action now and find your dream home today!
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Quote from @Tiya Khambadkone:
Hello All,
I am new to this forum and hoping to get some advice from you.
I am not a first time home buyer.
I am moving to Atlanta, GA and hoping to live there for a long time unless I really do not like the place and wants to move back to Illinois. I have some amount that I can use for the downpayment. So here are few options that I have and I am finding difficult to choose:
Option 1 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta that I want to buy, I can instead buy a studio or a small 1 bed in Chicago. No mortgage needed. Will have to pay higher taxes and HOA but will be able to get ROI of 3 to 4% PLUS will be building an asset. Meanwhile, rent a house in Atlanta for 1 year with the hope that market will cool off and mortgage rate might do down.
Option 2 : Rent my current home in IL. With the down payment amount that I have for the new house in Atlanta, buy a townhome in Atlanta immediately and move. Rent the townhome after couple of years and then try to buy a bigger house.
Option 3 : Sell my current home in IL. I will lose the good mortgage rate on the current home. Use the money to buy a house in Atlanta. This money won't be sufficient, so with the high mortgage rate and competitive housing market, buy a townhome or a house.
Do you think any other option will be better?
Option 4: Turn your Illinois home into an investment property by renting it. Put a downpayment on a home in Hotlanta. After a year or two sell the Illinois home and use a 1031 exchange to purchase another investment property.
In your option 3- selling the home in Illinois you most likely will pay long-term capital gain taxes on the sale. With a 1031 you can hold off f you can hold afford to hold off on selling and convert the home to an investment property you'll be able to take advantage of this.
Do some research on 1031 exchanges.
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Quote from @Jay Thomas:Could you please explain what this means? If I put 3.5% down then I could get 6%in closing costs credits. How?
You could buy that primary with a lower down or get money back to close with the option of buying down the rate or covering closing costs. For 3.5% down, you can receive up to 6% in closing costs credits from seller/repairs depending on the total house price. So $6K for a $100,000 house - now that's an incredible offer!
Hey @Tiya Khambadkone - I live here in Chicago and my partner @Bolanle Ogunmakin lives down in Atlanta. You guys should connect!
Regarding your situation, I like option 2! Because you get to keep your rental here in Chicago IL and then buy a primary residence down in ATL. Are you able to buy a multifamily instead of a townhouse though? It also might help if you through out some dollar numbers of how much stuff costs and what you could afford.
At the end of the day do what feels light, don't resist your intuition.
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Questions:
Which is more important to you cash flow or appreciation?
How much would the Chicago home cash flow each month?
How much would the Chicago #2 acquisition (studio) cash flow you each month?
What part of ATL do you want to live in?
Are you open to house hacking in ATL & getting roommates?
The good news here is that this is a GOOD problem to have.
These are the things that I would consider if I was in your situation:
1. Evaluate the headache factor of owning out of state property -> Do you have a property manager / friend / family you can trust to check on your property(s) while for you. Same goes for contractors and handymen. Does it make you nervous worrying about the property(s) before you have even left?
2. Evaluate from a pure financial perspective -> What are your projected returns over a 5 year period renting out your current home? How about 10, 20, 30 years? How do those compare on buying something in Atlanta? If you sold your home in Chicago, and bought a home in Atlanta would you be better or worse off from a cash flow perspective? If kept the house in Chicago and bought a home in Atlanta, would you be comfortable with your reserves? Same goes for holding onto the Chicago house and buying a condo.
3. Compare markets on a neighborhood basis -> Which one do you think better fits your goals over the long term? Is the neighborhood you're going to buy in Atlanta, better than the neighborhood in Chicago? Do you feel confident that you can keep them rented?
There is no shame going from owning a house to renting either. You got to do what is best for you! If you do decide you want to buy, spend a week down here in Atlanta and check out all the local areas and see which you like the most.
I lived in Naperville for about a year during my first job out of school, and while I dearly miss Portillos, I do not miss the Chicagoland winters :)