Can I buy investment properties now or wait until I bought a personal residence?

16 Replies

Helllo fellow BP members!

I'm looking to invest in Philly universities area and potentially Buffalo, NY however, my wife and I are currently looking to buy a home as our personal residence. Should we wait until we have bought a house or should we get some multifamily properties while we wait? Our interest are buy & hold. 

I think it makes sense to take care of your primary residence 1st. Get home base set up then look to investments.

Your 1st home purchase is an emotional experience. It would help to get some of that emotion out of the way so you can be more disciplined when looking at your rental purchases.

@James Wise  That makes perfect sense. I figured I could at least get an investment property in contract while I wait but since it's not just me but my wife and myself, getting our home first is wise. The good thing is that we have a duplex that we owner occupy & is free and clear of a mortgage. 

@Ayodeji Kuponiyi  When you say "The good thing is that we have a duplex that we owner occupy & is free and clear of a mortgage", doesn't that mean that you HAVE taken care of your primary Residence? Yes, I know, we ALL want more, more, more for our own lifestyle, but it seems to me that the more you can invest to generate cash-on-cash returns FIRST, the more that you will be rewarded later for your patience!  If you go in too deeply into borrowing for your own "dream home" too early, it might put possible investment opportunities out of your reach for too many years? (I'm just presenting the other side of the debate for your consideration). All the best...

If I were you I would purchase a 2-4 multifamily, live in one of the units and rent out the rest. 

Personally I plan on purchasing a multifamily as my first residence. When I purchase a single family residence I will keep the multifamily as a buy and hold property. 

I can get more favorable FHA financing for an owner occupied house and lower down payment requirements. The rent from the other unit will cover my mortgage payment, taxes and insurance. This will allow me to save more money for a more permanent personal home and future investments.

Brandon Turner wrote a article about using this strategy. Check it out.

How to “Hack” Your Housing and Get Paid to Live for Free

@Brent Coombs Initially the duplex was meant to be a rental. 2 and half years later my wife wants a SFH for us to start a family in & by renting our current unit, receive more cash flow. Once we move & rent our current unit, we can refinance the duplex to puchase more properties.

If I was single, I would purchase a multi family property to "house hack" or owner occupy thus lowering my downpayment and rent the remaining units to pay down the mortgage and repeat the process with refinancing. Since I'm married, the old adage 'happy wife, happy life' comes into effect lol.  

@Ayodeji Kuponiyi  I think you are doing the right thing.  You already have one duplex in your portfolio and now maybe get another property like a quad or multifamily (>4 units) where you live in and manage too. 

Using your strategy you are accomplishing the american dream and if you don't want to live near your tenants any longer, then ensure the cash-flow from your investments pay for your new home and then some.

You are doing the right thing by investing in areas that have sustaining and growing economies such as Universities/Colleges.  My strategies include such these things as well and also items like no fire places, no pools, and no HOAs.  I also look at multifamily units where utilities are individually metered if possible.  I also like 2+ bedrooms and properties that are not stacked like condos.  I have broken my rules above based on the numbers for the property - but use them as a general guideline and I encourage you to develop your criteria as well - it will make the search much easier!

Good luck and I wish you success!

Originally posted by @Adam Anderson :

If I were you I would purchase a 2-4 multifamily, live in one of the units and rent out the rest. 

Personally I plan on purchasing a multifamily as my first residence. When I purchase a single family residence I will keep the multifamily as a buy and hold property. 

I can get more favorable FHA financing for an owner occupied house and lower down payment requirements. The rent from the other unit will cover my mortgage payment, taxes and insurance. This will allow me to save more money for a more permanent personal home and future investments.

Brandon Turner wrote a article about using this strategy. Check it out.

How to “Hack” Your Housing and Get Paid to Live for Free

I agree with you Adam. If I was single I'ld would definitely do that. I'm not single and compromise comes with an relationship and marriage is no different. My wife convinced me that we should by a SFH and continue our multifamily investments right after. My wife is tired of living with our tenants, and want our own space. Since we know what we can afford and are currently under contract, refinancing our duplex along with renting out our current unit will help us continue our endevaors.

Thanks @David P. for your support and advice. After getting our SFH, we definitely looking into a multifamily property, preferably a quad if the numbers work. Initially, I wanted to invest in the burbs but last year alone I paid $6,066 in taxes! That is why I shifted my attention to Philly area, specifically the areas around universities and hospitals. The only tax I'll pay is the property which is great compared to the school,property, county/borough tax I pay in the burbs.

@David P. Thanks for your support and advice. After getting our SFH, we definitely looking into a multifamily property, preferably a quad if the numbers work. Initially, I wanted to invest in the burbs but last year alone I paid $6,066 in taxes! That is why I shifted my attention to Philly area, specifically the areas around universities and hospitals. The only tax I'll pay is the property which is great compared to the school,property, county/borough tax I pay in the burbs

If you refi your Duplex before you buy your SFH you will get a better rate as it is Owner occupied.

@Ayodeji Kuponiyi  yes I have had same issues with property taxes, but what I have found is other expense items compensate for the taxes such as insurance, local license fee, etc. 

One way or another it seem to balance out in the different markets I am in.  It seems as if property taxes are lower in areas that have a higher consumption tax. (merchandise)  I like areas where the property taxes are lower as the properties tend to make better investments overall.

I would use caution if you take @Charles Morgan  advice to refinance your duplex.  Mortgage companies are becoming more forgiving on refi-cash-out loans especially with investment properties, however this will affect your credit score and could potentially prevent you from purchasing another property - personal or investment.  This is where working with a lender will help as they will typically guide you in the right direction and keep you from making a choice that could hurt your strategy.  

Although I am a big fan of using equity from investment properties to re-invest into other investment properties, there are consequences to take into account.  I would maybe suggest an equity line on your investment property instead - its line of credit that is revolving and you can use as you need it and most often is interest only for a period of time, but the rates are a little higher and not fixed.  So be careful with this as well as you don't want to have it long term - but it could be the "Cash Bridge" to getting a deal completed quickly and then finance the property after seasoning period is completed.

The multi-family seems like a great route to go IF it's located somewhere you want to live. Where I'm located, all the multis seem to be places we didn't want to spend time in.  

My wife and ended up getting our primary house to live in first, then w/in 6mos turned around and bought a rental.  We put down 3-5% for the primary, and then 25% for the rental.  

The main caveat to this strategy though is the risk.  I would encourage making sure that you have plenty of extra funds still available as stuff with either house comes up.  

@Charles Morgan  I didn't know that, I'll have to research that @David P. how will cash out refinance hurt my credit & prevet me from purchasing anothr property? If the HELOC offers variable as oppose to fixed interest rates, I would rather get a fixed interest. I'll talk to my lender to confirm which is better suited for what I'm trying to do.

@Carter Melvin  You are very right. Having funds is definitely necessary as I've learned this first hand with my duplex. Once I've refinance, I'll put aside some money for emergency expenses as well as put a portion of the rents I received towards repairs that may come up down the line.

@Ayodeji Kuponiyi  taking out any loan prior to purchasing your "Primary" property (or less than 4 units) can hurt you - your credit score, debt to income ratio etc.  When talking with your lender they should be able to recommend strategies to you based upon your plan.  The position you don't really want to be in - if you refinance/cash-out of your duplex and your income doesn't meet the minimum for your "Primary" residence.  Lenders are pretty savvy to what investors do with trying to lend on more than they can afford.  I am advising caution only and since I don't fully understand your financial picture I just don't want to see you not fulfill your dreams! 

The HELOC offers flexibility in your financing - hence the variable terms. It should be used as a tool to help you build your empire, not long term financing which can be accomplished with fixed terms. Financing is not cut and dry and once you understand the many varieties of financing available you will become a better investor and using OPM to make you more money!

This is two fold issue we are discussing here but the more you know the better decisions you can and will make. Good luck!

@David P. Thnks for your concern. I'll definitely talk to my lender. I plan to take money out of my duplex to purchase another multifamily, not fund the SFH.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here