Buy my first home or use the downpayment to invest?

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Buy my first home or use the downpayment to invest?

Jordan Feiner
Member since 2018 · 35 posts · 7 votes

Hey BP, new member here. I've been wanting to get into real estate investing, but need to find a roadmap so BP has been a revelation.

My question is in the subject line - should I buy my first house or invest?

Here's my situation, I live in LA so the housing market is bonkers, a $1.6 mil teardown getting multiple offers the first day on the market is common. Its starting to cool, so that means its going from insane to just ridiculous. I've saved ups several hundred thousand for a downpayment but that's only getting me a fixer-upper. The more I listen to BP, the more I think, investing might make more sense for me.

Yes, my family could move to the Valley and get a great house for our money but that would mean a 2.5-3 hr roundtrip daily commute and I'd never see my new baby and wife. Our rental situation is pretty great, huge duplex in a terrific neighborhood, the rent is under market, to put that into context, a mortgage would double our housing costs.

Yes, I'm paying someone else's mortgage but if I'm investing and going after a higher ROI than just the appreciation in a single LA home. I love my job and get paid handsomely for it but I'd like to be independent in the next 10 years so I gotta get cracking.

Am I nuts to be thinking this?

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Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
8y
Jordan Feiner - did you already meet with the owner of your duplex to offer to buy it? Sunny Burns was on the show a while ago. I met him in New Jersey and he bought a foreclosure quadplex near New York City through Fannie Mae firstlook or other home owner occupant only (no investor) periods. Get set up on a property alert from a local agent and think about renting rooms (or buying a duplex) to long term vetted roommates for more income.
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  • Samuel Glantz
    Peoria, AZ · Member since 2018 · 55 posts · 24 votes
    8y

    Dude first of all congrats. I'm a newbie just like you. I dream of being able to do that here you are doing it. I'm slow to start cause of funds. You have funds in spades. If your happy renting then rent away, it gives you flexibility. No rule that says you have own your residence to invest in real estate. 

    If I were in your shoes I would be locating a city outside of Cali. Maybe kc, indy, Columbus, etc... And brrrr the crap out of it. Or if you want a more hands off approach look for a solid turnkey company. If you brrrr you can probably scale very fast after you have a few under your belt and the experience to mitigate mistakes. 

    Saving that much is no small task. Houses will be there always. The market in California has to cool at some point. Get a solid investment portfolio and look toward a purchase in a few years. Like you said you like your rental your in, no reason to move unless your either needing more space, can't afford it any longer, or just plain miserable with the area. If your happy stay and invest away. 

    2Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    8y
    Jordan Feiner - did you already meet with the owner of your duplex to offer to buy it? Sunny Burns was on the show a while ago. I met him in New Jersey and he bought a foreclosure quadplex near New York City through Fannie Mae firstlook or other home owner occupant only (no investor) periods. Get set up on a property alert from a local agent and think about renting rooms (or buying a duplex) to long term vetted roommates for more income.
    4Reply
  • Lesley Resnick
    Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    I think you are on the right track and your priorities are in the right place. What good is owning house that makes you miserable and all you do is commute. I live in a beach town and I own my primary home. I have long thought about renting it out and upgrading to a rental. I could rent an ocean front house for less than the mortgage to buy.

    There seems to be a search for the “golden rule” and all you have to do is follow it and you will be…. They key is figuring out what YOUR goals are and how to execute. LA is a cool town and I understand wanting to live there. So, the question is how do you make it work?

    RE is Ca does not work for anyone (investors or home owners). In short, invest out of town. There are a lot of good choices, you can find them on BP. In full disclosure, I live and invest in Jacksonville and cannot say enough good things about it! 

    0Reply
  • Colin B.
    Rental Property Investor · Astoria, NY · Member since 2011 · 16 posts · 11 votes
    8y

    First, congrats. What an empowering position to be in. I was in a similar position in NYC several years ago.

    To me, there are several questions that you need to ask yourself. 1) Do you see yourself in LA for a long time (say 5 years or more)? 2) Can you find a building in the LA area in a neighborhood that you want to live and that will at least allow you to lock in your housing expenses at or close to your current housing expenses? I would look for something that you can turn into a 3 unit or 4 unit but a duplex may work at least initially — a shell is totally OK (and may be preferred) if you have the budget to renovate (note that you may be able to find a construction loan with as little as 3.5% down although you’ll need to run the numbers to see whether it will work for you).

    If the answer to the first question is no (or the answer to the first question is yes and the answer to the second question is no), then don’t invest in LA because you are likely able to get better cash flow elsewhere to offset your current housing costs. If the answer to the first question is yes and the second question is yes, I think you may be in a better spot by buying in LA.

    I initially was not sure that I was going to stay in NYC so invested outside of NYC. When I determined that I would be in NYC for a long time, I bought a duplex in a neighborhood that I liked that locked in my housing costs (including taxes, insurance and maintenance) at roughly the cost of renting. I didn’t plan for it but rents have gone up as have prices, which has put me in a better cash flow and equity position. I’m now in the process of expanding the duplex into a four unit. When this is done, the cash flow off the building will more than cover my housing expenses.

    One final observation - if you think it is going to take you time to watch the markets before making a decision, consider becoming a lender over the short run (either by investing in hard money loans or re-performing notes). You can get good returns over the short run to increase your “war chest” without sacrificing the same level of liquidity as if you bought real estate equity. If you’re curious about the debt side, read articles by David Van Horn.

    PM me if you want further thoughts. Good luck.

    0Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    8y

    By any chance, do you qualify for the definition of an accredited investor? Acquisition of properties in Los Angeles, while probably good in the long term from a capital appreciation standpoint, would make me nervous right now simply because of where we are in the RE cycle. For this reason, I have stopped looking for properties to purchase (but will keep my existing LA properties) and have started to put my money into syndicated deals and investment funds that are a bit more conservative and by their nature (i.e., hard money lending, litigation settlement funds, etc.) might hold up better in a downturn and aren't correlated with the RE market. 

    By the way, I tried living in the valley because I was enticed by the lower home prices, but that experiment only lasted 2 years. If you are used to the paradise like weather of the Westside, the summers in the valley will be a difficult adjustment. I moved back to Wilshire Park two years ago and am loving it. 

    0Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y
    Originally posted by @Samuel Glantz:

    Dude first of all congrats. I'm a newbie just like you. I dream of being able to do that here you are doing it. I'm slow to start cause of funds. You have funds in spades. If your happy renting then rent away, it gives you flexibility. No rule that says you have own your residence to invest in real estate. 

    If I were in your shoes I would be locating a city outside of Cali. Maybe kc, indy, Columbus, etc... And brrrr the crap out of it. Or if you want a more hands off approach look for a solid turnkey company. If you brrrr you can probably scale very fast after you have a few under your belt and the experience to mitigate mistakes. 

    Saving that much is no small task. Houses will be there always. The market in California has to cool at some point. Get a solid investment portfolio and look toward a purchase in a few years. Like you said you like your rental your in, no reason to move unless your either needing more space, can't afford it any longer, or just plain miserable with the area. If your happy stay and invest away. 

    0Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y

    thanks for replying Sam. I am thinking about BRRR'ing out of state although i don't see the LA market cooling much anytime soon. Ive lived out here almost 20 yrs now and everyone says that and it's still hitting new highs.

    0Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y
    Originally posted by @Natalie Schanne:

    Jordan Feiner - did you already meet with the owner of your duplex to offer to buy it?

    Sunny Burns was on the show a while ago. I met him in New Jersey and he bought a foreclosure quadplex near New York City through Fannie Mae firstlook or other home owner occupant only (no investor) periods.

    Get set up on a property alert from a local agent and think about renting rooms (or buying a duplex) to long term vetted roommates for more income.

    Thanks for the response Natalie, I would love to buy it, but I couldn't afford the Duplex I live in.  Based on comps in my neighborhood it would be $3 mil or just over.  

    0Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y
    Originally posted by @Colin B.:

    First, congrats. What an empowering position to be in. I was in a similar position in NYC several years ago.

    To me, there are several questions that you need to ask yourself. 1) Do you see yourself in LA for a long time (say 5 years or more)? 2) Can you find a building in the LA area in a neighborhood that you want to live and that will at least allow you to lock in your housing expenses at or close to your current housing expenses? I would look for something that you can turn into a 3 unit or 4 unit but a duplex may work at least initially — a shell is totally OK (and may be preferred) if you have the budget to renovate (note that you may be able to find a construction loan with as little as 3.5% down although you’ll need to run the numbers to see whether it will work for you).

    If the answer to the first question is no (or the answer to the first question is yes and the answer to the second question is no), then don’t invest in LA because you are likely able to get better cash flow elsewhere to offset your current housing costs. If the answer to the first question is yes and the second question is yes, I think you may be in a better spot by buying in LA.

    I initially was not sure that I was going to stay in NYC so invested outside of NYC. When I determined that I would be in NYC for a long time, I bought a duplex in a neighborhood that I liked that locked in my housing costs (including taxes, insurance and maintenance) at roughly the cost of renting. I didn’t plan for it but rents have gone up as have prices, which has put me in a better cash flow and equity position. I’m now in the process of expanding the duplex into a four unit. When this is done, the cash flow off the building will more than cover my housing expenses.

    One final observation - if you think it is going to take you time to watch the markets before making a decision, consider becoming a lender over the short run (either by investing in hard money loans or re-performing notes). You can get good returns over the short run to increase your “war chest” without sacrificing the same level of liquidity as if you bought real estate equity. If you’re curious about the debt side, read articles by David Van Horn.

    PM me if you want further thoughts. Good luck.

     Thanks Bumpy.  That's a terrific handle btw.  I want to become friends just so I can casually throwout, "my friend Bumpy"  I was thinking about a construction loan but can you use them for renovations?  I thought they could only be used for forced appreciation, i.e., increasing sq footage, adding bathrooms.  Lending is an interesting idea, I'll read some DVH articles tonight.  

    0Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y
    Originally posted by @Tony Kim:

    By any chance, do you qualify for the definition of an accredited investor? Acquisition of properties in Los Angeles, while probably good in the long term from a capital appreciation standpoint, would make me nervous right now simply because of where we are in the RE cycle. For this reason, I have stopped looking for properties to purchase (but will keep my existing LA properties) and have started to put my money into syndicated deals and investment funds that are a bit more conservative and by their nature (i.e., hard money lending, litigation settlement funds, etc.) might hold up better in a downturn and aren't correlated with the RE market. 

    By the way, I tried living in the valley because I was enticed by the lower home prices, but that experiment only lasted 2 years. If you are used to the paradise like weather of the Westside, the summers in the valley will be a difficult adjustment. I moved back to Wilshire Park two years ago and am loving it. 

    Wilshire Park is a great neighborhood.  I's love to get a house in the country club park neighborhood.  I never knew about it and was blown away.  I hear ya on the cycle, but I'm focussing on a buy and hold strategy so the soonest I'd be looking to offload would be 15-18 years.  I love my day job and want to keep at it.  You're the 2nd person to mention lending to me so I'm going to dive into learning the ins and outs.  No idea if I qualify as an "accredited lender"  will look into it. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Jordan Feiner:
    Originally posted by @Tony Kim:

    By any chance, do you qualify for the definition of an accredited investor? Acquisition of properties in Los Angeles, while probably good in the long term from a capital appreciation standpoint, would make me nervous right now simply because of where we are in the RE cycle. For this reason, I have stopped looking for properties to purchase (but will keep my existing LA properties) and have started to put my money into syndicated deals and investment funds that are a bit more conservative and by their nature (i.e., hard money lending, litigation settlement funds, etc.) might hold up better in a downturn and aren't correlated with the RE market. 

    By the way, I tried living in the valley because I was enticed by the lower home prices, but that experiment only lasted 2 years. If you are used to the paradise like weather of the Westside, the summers in the valley will be a difficult adjustment. I moved back to Wilshire Park two years ago and am loving it. 

    Wilshire Park is a great neighborhood.  I's love to get a house in the country club park neighborhood.  I never knew about it and was blown away.  I hear ya on the cycle, but I'm focussing on a buy and hold strategy so the soonest I'd be looking to offload would be 15-18 years.  I love my day job and want to keep at it.  You're the 2nd person to mention lending to me so I'm going to dive into learning the ins and outs.  No idea if I qualify as an "accredited lender"  will look into it. 

     Google Norris investments they are right there in LA they will have   BE the bank investments U can check out.. Bruce Norris is one of the most respected investors in Socal.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Tara Wright
    Bay Area, CA · Member since 2018 · 27 posts · 16 votes
    8y
    @Jordan Feiner I feel your Cali pain. I’m in the Bay Area, also several hundreds of thousands saved but that’s not moving the needle towards getting a house where I am. For a four bedroom that is in the very small catchment area for the school distrit I am in, I’m looking at 4M. So I also rent, and while it’s painful to write the check, that hurt has brought me here to BP. I’m now trying to figure out if I should go out of state (have only very limited knowledge of a few areas out of state, so that’s nerve wracking) OR if I should try and invest in CA but not in my neighborhood, maybe Oakland, Richmond, not sure. I’m staying put until eldest graduates HS which is in less than 2 years, and while I would love to own in 94301 that is just not going to happen. Would love to know what you decide! And @Jay Hinrichs if you have Richmond/Oakland thoughts for a fellow Palo Altan I’d love to hear them :)
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Tara Wright:
    @Jordan Feiner I feel your Cali pain. I’m in the Bay Area, also several hundreds of thousands saved but that’s not moving the needle towards getting a house where I am. For a four bedroom that is in the very small catchment area for the school distrit I am in, I’m looking at 4M.

    So I also rent, and while it’s painful to write the check, that hurt has brought me here to BP. I’m now trying to figure out if I should go out of state (have only very limited knowledge of a few areas out of state, so that’s nerve wracking) OR if I should try and invest in CA but not in my neighborhood, maybe Oakland, Richmond, not sure. I’m staying put until eldest graduates HS which is in less than 2 years, and while I would love to own in 94301 that is just not going to happen. Would love to know what you decide! And @Jay Hinrichs if you have Richmond/Oakland thoughts for a fellow Palo Altan I’d love to hear them :)

     I have been buying lots in Richmond the last 18 months..  Richmond just has to go  just like E PA went up.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Tara Wright
    Bay Area, CA · Member since 2018 · 27 posts · 16 votes
    8y

    @Jay Hinrichs agreed. In my childhood I remember Whiskey Gulch, just over the border. And it wasn’t named that because there was a bespoke whiskey distillery for hipsters. I still see people refer to EPA as a war zone, though that’s mostly people who haven’t seen the changes. 

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Tara Wright:

    @Jay Hinrichs agreed. In my childhood I remember Whiskey Gulch, just over the border. And it wasn’t named that because there was a bespoke whiskey distillery for hipsters. I still see people refer to EPA as a war zone, though that’s mostly people who haven’t seen the changes. 

     I bought a forclosure in EPA in 79 for 8k and it was a house.. flipped it for 14k and thought I was one of the few genius on the peninsula.. Rock star investor I was.. :)

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y

    IMO based on your time line of 18 years ish, try to find something you can work with in LA, which is easier said than done at times. My reasoning is based on average historical total profits (cash flow+equity gains) LA was #1 in the nation since 2000. Check any duplex value and rents from 2000 vs 2018 as these can be multiple 6 upto 7 figures concerns. I don't see any reason why this will not continue longer haul and then add possible redevelopment.  

    Good luck with you search!

    2Reply
  • Jordan Feiner
    OP
    Member since 2018 · 35 posts · 7 votes
    8y
    Originally posted by @Matt R.:

    IMO based on your time line of 18 years ish, try to find something you can work with in LA, which is easier said than done at times. My reasoning is based on average historical total profits (cash flow+equity gains) LA was #1 in the nation since 2000. Check any duplex value and rents from 2000 vs 2018 as these can be multiple 6 upto 7 figures concerns. I don't see any reason why this will not continue longer haul and then add possible redevelopment.  

    Good luck with you search!

     thanks Matt, Are you saying buy a duplex in LA or a primary house?  

    0Reply
  • Account Closed
    Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
    8y
    Originally posted by @Tara Wright:
    @Jordan Feiner I feel your Cali pain. I’m in the Bay Area, also several hundreds of thousands saved but that’s not moving the needle towards getting a house where I am. For a four bedroom that is in the very small catchment area for the school distrit I am in, I’m looking at 4M.

    So I also rent, and while it’s painful to write the check, that hurt has brought me here to BP. I’m now trying to figure out if I should go out of state (have only very limited knowledge of a few areas out of state, so that’s nerve wracking) OR if I should try and invest in CA but not in my neighborhood, maybe Oakland, Richmond, not sure. I’m staying put until eldest graduates HS which is in less than 2 years, and while I would love to own in 94301 that is just not going to happen. Would love to know what you decide! And @Jay Hinrichs if you have Richmond/Oakland thoughts for a fellow Palo Altan I’d love to hear them :)

    $4M for a house??!? There are very nice cities just a stone's throw from Atherton or Palo Alto where the price is half of that. 

    1Reply
  • Tara Wright
    Bay Area, CA · Member since 2018 · 27 posts · 16 votes
    8y
    Originally posted by @Account Closed:

    $4M for a house??!? There are very nice cities just a stone's throw from Atherton or Palo Alto where the price is half of that. 

    You must have a great arm! It's true though, lots of beautiful cities in Cali for less. We could move out of the district but kids are entrenched in the schools, have best friends/grandparents nearby. Not ideal for sure, but things will be different in a couple years, but right now it is what it is! 

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y

    @Jordan Feiner I guess what I am saying is find something in LA if at all possible , could be SFH or duplex, tri, quad...etc. Keep in mind the new ADU laws could make a SFR a duplex future sort of speak. Good luck!

    0Reply
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