Become Newbie investor or buy family home?

Question

I have a bit of a dilemma and would like help thinking things through. I want to build wealth. But this is easier said than done. We have a newborn baby and are in a position that we need a new home within the next two years. We have already saved up $50,000. We could either put that money into a new home for ourselves because we have a baby and need the room or I was thinking we could invest that money and flipping a home or doing a few rental properties maybe via tax deed sales and Rehab them? We do not need to move into a new home for at least two years while our baby is small, he can sleep in our bedroom. This gives us some time to think and maybe make some money.

1 strategy I am thinking is find tax deed sale or auction home. Then rehab, and sell or rent. The other strategy is the same thing but convert the tax deed sale home into a Section 8 home and rent it out. Maybe this is a foolish plan I have no idea, I've never done anything like this.

Thanks in advance for anyone coming in and offering up help.

1 strategy I am thinking is find tax deed sale or auction home. Then rehab, and sell or rent. The other strategy is the same thing but convert the tax deed sale home into a Section 8 home and rent it out. Maybe this is a foolish plan I have no idea, I've never done anything like this.

Thanks in advance for anyone coming in and offering up help.

Andy Smith · Answer

I am fairly new here, so I don't know if my opinion on the matter is worth two pennies, but here it is: why not do both--buy a family home AND invest at the same time?

How? A duplex or some other type of multifamily unit. You could find and occupy one unit in a multifamily property that meets your family's needs, and generate investment income by renting out the other unit(s).

I am not sure what the RE market in your region looks like, but 50K should open quite a few doors.

Daniel Chang · Answer

My opinion only.

If it were me, I'd just use the money to buy a personal residence.  This is compounded by the fact that you've never done this before.  If you know with certainty that you will make money from your ventures, and get your money out in time to buy your home in 2 years, then obviously try to increase your wealth.  However real estate ventures aren't without risk.  Which means, you are more likely to lose money than someone else who has a lot of experience.

It does however come down to your personality and your personal risk/reward meter.

Paul Timmins · Answer

Scott A.

Locate and attend 3 different local REIA club meetings great place to meet people gather resources and info. Here you will meet wholesalers who provide deals and rehabbers (cash buyers). Find them through Google and meetup.com

Two Great reads, I bought both J. Scott The Book on Flipping Houses,  The Book on Estimating ReHab Costs  http://www.biggerpockets.com/flippingbook

Consider checking out HUD homes for small multi's owner occupied gets first crack. I grew up in a 2 family first house was one as was first rental.

Download BP’s newest book here some good due diligence in Chapter 10. Real Estate Rewind Starting over

http://www.biggerpockets.com/files/user/brandonatbp/file/real-estate-rewind-a-biggerpockets-community-book

Good Luck

Paul

Roger Vi · Answer

Scott A. After owning/living in a home for 3+ years and owning/renting a home for 2+ years, I would have to advise AGAINST buying the home you are living in. That is if investing is your main priority right now.

Owning a home is really an expense unless you are occupying a multi-unit. The lenders and agents will tell you how great appreciation and equity buildup is, but the truth is you can get both of those with a rental property. Only difference is someone is paying you money in your rental and you are paying your mortgage company in your personal home. Either way, you are responsible for repairs, capex, etc... Owning a rental will teach you everything owning a home will teach you plus more. That's my opinion at least.

It will be a headache when a tenant calls for maintenance requests. It will be more of a headache when you have your own maintenance request and it comes out of your own pocket.

I could go on and on but the point is I've owned both and am looking to sell my primary home for a rental at the moment.

Hope this helps! Congratulations on the baby and good luck with the exciting times that come ahead for you!

Valerie Hiscoe · Answer

Buy your personal residence.  Renting will be paying someone else's mortgage.  Once you've purchased the property, build or use the equity in your home to invest.  For example, if you used your $50k to purchase a $150k residence, you may be able to get a home equity line of credit (HELOC) for 80% of the value of your home, less your mortgage.  In this case, 80% of $150k is $120k less the mortgage you owe on the home ( $150k-$50k=$100k) so $120k-$100k=$20k that you could use towards a deposit on an investment property. It's even better if you can follow the above advice from @Andy Smith and purchase a duplex or house with an in-law suite or something like that. You'll need to pay more for a multi-family and therefore wait a little longer before you can leave 20% equity in the property and still take out enough for a down payment but you'll be building wealth either way.  And as far as I know, owning one's own home is a highly desirable trait that bankers look for and you DEFINITELY want to make bankers happy.

My advice would be to get in touch with a mortgage specialist who understands investing before you make any decisions.  Right now your financial foundation and your growth strategy is probably more important than finding tax deed sales etc. Find a local real estate club and ask for referrals or ask on the forums here.

Best of luck and congratulations on your new baby!!

Become Newbie investor or buy family home?

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