Should I Live in My First Real Estate Investment?

22 Replies


I am currently honing my strategy for buying my first property. I have a goal of being financially independent in 7-10 years. My current dilemma is whether or not to buy my first property with intent to rent it out, or buy (a townhome or apartment) and live in it (hopefully being able to charge my roommate most or all of my mortgage payment).

I know there are loans in which you can take advantage of so that you do not have to put money down when buying your first home, but you must live there. Does anyone know how long you must live there afterwards to still be eligible for the loan?

Also, being that this will be my first property, what price range should I be looking for? I just graduated college in May and am looking to buy by next July.



For my first property I bought a two-family and lived in one unit.  It might be difficult to get your roommate, presumably a friend, to pay for most of the mortgage.  That could really strain the friendship.

If you're going to live in it, you'd qualify for owner-occupied financing. When I did it, I got FHA financing and had to live there for a year. Price range depends on your income. Educate yourself about debt-to-income ratio and talk to a lender about its DTI and down payment requirements.

@Account Closed

Thanks for the response. Was the income from the other occupant able to pay the mortgage?

Probably the best way to get started. "house hacking" as it's commonly called. You can keep the loan as long as you like as long as you make payments you shouldn't have an issue. Price range is dependent entirely on your market.

Rent paid around 75% of the mortgage. But don't forget all your other expenses - taxes, insurance, utilities, landscaping, municipal rental license, HOA fees, reserve for repairs/improvements.

Taxes may be included in the mortgage payment. Don't confuse mortgage insurance (which insures the bank from loan default and will be included in your payment) with homeowner's insurance. Rental license and HOA fees may or may not apply.

@Grey Haubert   2nd @Account Closed 's post. I'm house hacking a duplex now with an FHA loan. The rent on one half is $800 and the mortgage is $735. Looking back, I would've done a 4plex instead of 2 units. One year is a typical live-in requirement, which actually goes by quicker than it would seem.

I agree with the house hacking. I'm doing it as we speak in my duplex. Mortgage is $1200, tenants pay $1050, win win!

Hi @Grey Haubert and welcome. I do agree with @Account Closed renting to a friend or family member will put a strain in your relationship and is not recommended.  I would look into house hacking instead of roommates to help paying the mortgage.  I'm about to close in 2 weeks my first 2 unit multi in Connecticut and after doing the math and all the expenses you will find it way more easier and profitable. 

so you have three choices:

(1) buy a non-owner occupied property and rent it out (you'll continue living where you are now or somewhere else) 

(2) buy a multi-fam and live in one unit, rent out the other(s) 

(3) buy an owner occupied (OO) property and rent out a bedroom 

do the math on each - with an OO you may qualify for an FHA insured mortgage which should allow for a reduced down payment (perhaps as low as 5%, sometimes lower). In addition, as an OO, your rate should be slightly lower than non-OO.

I believe an FHA loan requires you occupy the property for at least 12 months. while you need to double check this, if accurate, it means at month 13 you could buy another place, FHA insured at 5% down, and pick up a second property. that is a strategy you could implement over a number of years if the math works.

as for a multi-fam that allows you occupy one unit, vs. single fam house or even condo, it just comes down to math. there is nothing wrong with having a friend or random occupant rent a bedroom from you, as long as the rent reflects fair market value (so I don't agree that charging a friend rent "could strain the relationship" - unless you're over charging of course). beyond all that, it is absolutely critical, obviously, that you screen your tenant / roommate rigorously - and living with "friends" isn't always a good idea. 

create an excel spreadsheet of these three verticals, any others I may have missed, with math predicated on what your local market reflects and feedback from lenders and see what it looks like. 

Hi Grey, @Jason A. Had a great post. Focus on the math. I bought my first property 6 months ago. It is a 3 family home in CT, and I purchased it using an FHA loan. If you are just graduating with the goal of buying a place soon, definitely look into FHA loans. Also look into getting a 203k loan (construction loan) with your FHA, if needed.

As I mentioned, I bought my property using FHA. I put 3.5% down and am currently living in the second floor with my former college roommate. He is paying fair market rent for the area, and it is also less than he was paying at our old place, so it's a win win.

I definitely recommend going for a 3 or 4 family home if you're looking at multi's.  Mathematically, it makes more sense.  All of the tenants cover my mortgage and expenses, so I am living for free. Also, I have found that living here helps while being a first time landlord.  Its easier if you need to fix anything, deal with tenants, collect rent, etc.  Of you're wary of 3 or 4 family homes, I can say that having 3 or 4 units isn't any more stressful than having just one to deal with in my opinion.  I actually prefer it, because you don't lose all of your cash flow when one unit becomes vacant.

@Grey Haubert you got a lot of great input here. I saw you mentioned a town house as a possible house-hack first purchase. I would strongly advise that you work with a realtor who understands your local market extremely well. Condo's struggle to maintain their value, and if we enter a "shift" in the market (some would argue we are are entering one as we speak..) hey typically perform worse than the MFR. MFR values stay more consistent and offer you the ability to cash flow a lot more when you leave, then the condo. Condo's have HOA fees that don't go "down" every year. I have never heard or a condo fee going down. Point is, if you are considering the condo or town house option you will need to make absolute certain you are getting a "deal." In most circumstances that would be at least 10% off from what the true value is. You also want to run your numbers through a calculator (Use the BP one, it's great) to ensure that you can cash flow in the next 5 - 10 years calculating in HOA increases as well. Lastly, and probably the most important item is going through the Condo Docs and operating budgets and all that. Is the property kept up well? Is there enough cash in the account to replace the CapEx items when they need replacing? You would be surprised to see that condo complexes don't factor in all the items they should be when determining their budgets and savings allotments. I have seen roofing, siding, and roadway "special assessments." How does that happen? Poor planning... Try to find out if the complex is good with their 5, 10, 20, 30 year plans. If it's not looking great when you see the budget, you could see a MAJOR loss in cash flow due to having to pay for an assessment. Just a thought on the condo side. If I were to give you my $.02, I would agree with grabbing a 2-4 family with FHA financing. It will be harder to find a "deal," but at least you will be able to calculate your cash flow to determine if you can live for free today, and make money when you leave. Good luck!

Thank you everyone for your input!

@Jason A. The only thing about FHA is unless a person meets 1 of 4 "acceptable situations", to my understanding, one would have to refi out of the FHA before being able to close on another. But yes, @Grey Haubert   you should be able to rinse and repeat as often as you're able to refinance. 

Most lenders will need a substantial amount of equity (at least 20-25%) before refinancing, but some of the smaller local banks may be more flexible if you have less than that. The cool thing about buying properties at a discount and rehabbing/renting before the refinance (BRRRR) is that there should be a good amount of equity built in, or forced rather, during the rehab stage. It should appraise for an amount hopefully high enough to give you that 20-25%, which you can then pull out, and use as a down payment on the next property.

At some point, you do want to let the properties build up some equity so you aren't over-leveraged with borrowed money, but it's a pretty cool strategy to get going.

Hey @Mark Douglas - thanks for mentioning as I was not aware of the possible need to refi out. Also not sure of the four "acceptable situations". 

It is worth looking into with a few lenders @Grey Haubert (ask the same question to three + lenders to ensure you get accurate info!) 

Hi @Grey Haubert it appears, at least based on your post, that you are considering  single family home.  Do you have any interest in purchasing a two, three or four unit as your first purchase?

Dear Grey:  The least risk and greatest benefits come from buying and living in a home for two years.  If you do this you may sell the property and pay NO income tax on the gain (up to $250K of gain for a single person).  Buy the nicest house that you can afford in the hopes that you can achieve as close to the full $250K in appreciation within two years.   the sell that home and do it again.  this is the best way  to start.  Also you can rent rooms in the house including ABNB.  The lender won't care.  Good luck, Steve. 

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@Mark Douglas - so let me revisit this Mark because I was not aware. 

In other words, UNLESS 1 of the 4 is met, one needs to refi in order to vacate and make a second (or additional) OO FHA insured purchase?

I assume that simply vacating the property and bringing in a tenant would NOT require the satisfaction of any of these four conditions (providing one is NOT pursuing another FHA insured mortgage).

Thanks for this - very helpful. 

@Jason A. "I assume that simply vacating the property and bringing in a tenant would NOT require the satisfaction of any of these four conditions (providing one is NOT pursuing another FHA insured mortgage)."  - Correct. The way I interpret this, is that you should be alright if you lived in an fha insured property ("supposed" to be for 1 and you move out to place a tenant in there.  

But yea, it seems that they (FHA) wants one of those four deals to be met, otherwise they won't allow multiple active fha mortgages. And I'm assuming it's up to the lender to do their due dilligence. I guess when they pull credit, they'd see the fha trade line, and I imagine that's when they'd ask if you have one of those 4 situations...?

@Grey Haubert Do you follow the Airbnb market in Charlotte?  I have talked to a number of rental home owners who are making really good money competing against local motels for busines/family/etc. travelers by renting out investment property on a nightly/weekly basis as opposed to a traditional 12 month rental lease.

I am house hacking a duplex I purchased this fall.  $1000 mortgage with renting out the other side for $1000. I recently had to move for my job and I had no intention to purchase property here.  Then I found bigger pockets, discovered house hacking.  It has been one of the best decisions I have made thus far. I am "living below my means", yet I am comfortable, learning to be a landlord, and saving for another property.  I cannot recommend this strategy enough.... 

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