Primary Residence vs. Investment Property

15 Replies

Hi guys,

We are getting ourselves into position to make our first purchase in 2018. I spoke with a local lender recently from Movement Mortgage and he told me that I wouldn't be able to get an investment property loan without owning a primary residence.

First of all, is this true of all lenders or just this company?

Second do you think it is better to continue renting, purchase our first investment property and build up the passive income prior to purchasing a primary residence or should we go the typical route of purchasing a primary residence first?

It seems to me that if I would purchase a primary residence first (bad debt) I would have to pay of the mortgage (about the same as rent) but I would also have additional expenses associated with a home that currently the management company pays for such as lawn care, maintenance of the property, etc. In addition if we own the property we would be more inclined to improve it thus sucking more money out of our pockets.

On the other hand if I purchase a primary residence the monthly payment each month would go towards paying off my mortgage and building equity in the home. This could be useful down the road when I could apply for a HELOC.

One last input: The purchase of a primary residence would cost little to no money because of the "First Time Home Buyer Program" incentives in Duval county that we could use.

What do you guys think?

House hack. A personal home life style liability that will limit your ability to invest. By house hatching you can accomplish both.

Second best option would be to invest and continue renting. It is far less expensive to rent than own/maintain a personal home. You will be able to save faster by living conservatively in a rental than you will be able to save by forced savings in a mortgage. The first 5 years of a home mortgage are almost entirely interest. Once your investments return a annual income of more than you need you can then throw it into a personal home.

House hacking is not an option for me at this particular time and I agree with the renting idea I believe but can I get an investment loan without having a primary residence?

@Joseph Hamaoui

I'd find a new lender. There are no federal requirements stipulating you must own a personal residence in order to own an investment property.

Hey @Bob Okenwa thanks for the input. I put out feelers for a different lender already. He didn't say that I can't own an investment property he just said they wouldn't lend.

Why not buy a duplex? Then you get have the best of both worlds. They will pay over half the mortgage and you can live in your own property while saving money to put towards the next investment.

@Jared Reutter There are no multifamily properties in the specific area we need to be in right now.

@Joseph Hamaoui
Typing from the phone so please excuse any typo / auto correct.
Not sure why you can't qualify for an investment property loan, unless you have issue meeting downpayment / reserve requirements. In that case buying a home with FHA / 3.5% down then 'house hack' by improving the house then rent it out after a year or two, and refi it to investor loan if you've built enough equity.
I will also talk to other mortgage providers to find other options. If money is the problem, then you can either find partners, or save more money to get started.
Good luck.

@Henry J. thanks for the input. I thought of doing something like that where we purchased the first home with investments in mind. I see two issues with it that I haven't found a good solution for yet:

1. I am married with two kids and while I would be enthusiastic to "house hack" my family would not be as happy to do so.

2. The areas where I would live are not the same areas where I would invest so if we did it that way we would end up with a nice house that gives a low return maybe 6%.

It seems to me that my best option so far has been to find new lenders and possibly private lending for the first investment property while I continue to rent.

What kind of bank were you at?  Smaller banks may be more helpful, and there are definitely ones that will do what you want.  You not having a personal house makes your debt to income ratio great.

 It sounds like you have identified what you want to do.  Don't let one bank stop you.  

The simple answer is that it's not true at all that you must own a primary residence before you can buy a rental property.  I'm sure lots of folks on here are examples of just that.  It's funny, I see all kinds of posts here on BP where someone told them "you can't do X because of Y' and 99.9% of them are just bad advice.  Unfortunately sometimes folks who just don't know the answer give one like they do.  Regardless of anything you are told, always do your own research.  You'd be surprised what you can do in the world of real estate especially if the things that do matter (debt to income, cash on hand, location, etc) fall into place.

I'd definitely shop around more banks. I've never heard of being required to own a primary before you can buy an investment property.

As far as buying an investment property before a primary, here are my thoughts on it (I'm quite in favor of it!)-

Hope that helps!

Thanks @Clint E. , @Justin B. and  @Ali Boone   !

The lender I spoke with was from Movement Mortgage but he could have meant that it was just something they can't do at his company.

I've been looking into other banks that are a little more local and investor friendly like Ameris Bank, Atlantic Coast Bank, and First Atlantic Bank. I'll try to update the community on what they say.

Based on the restrictive laminations you have placed on yourself regarding family priorities you do not have any viable options aside from continuing to rent. Purchasing a personal home is a lifestyle decision that is a liability not a investment. You need to establish your priorities, lifestyle or investment, then determine the order.

There are definitely direct lenders and private lenders that don't require you to own a primary to get a secondary.  I know from first hand experience.  Just have to find one you're comfortable working with.

After you go through getting a mortgage, you'll run into insurance issues where they tell you we'll sell you insurance for your rentals if you insure your primary home, your car, with us. So you say "but I don't have a primary home." They'll give you a strange look.

So I would say somewhere, somehow get yourself a primary home and go on from there. It reminds me when I was a kid, I grew up in a non religious family, and everywhere I go, people ask me what my religion is. I reminder my dad saying "that's the way the world works, so just make believe you have a religion. I said "what religion?" He said "Just tell them you're a Buddhist. I said "I know nothing about Buddhism", and he replies "good, neither do they".

So, in my dad's view, the way the world works is everyone has a primary home, so you'll make the first purchase your primary home. So for a short while, you have your credit bills sent there, set up utilities in your name etc., in case anyone checks. Normally, they require you to live there for at least a year, to satisfy the owner occupant requirements, then you move on.

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