Buying a Home or an Investment Property

5 Replies

Hello all! I am new to the forums and to real estate in general. I want to begin my investing journey in single-family homes but am torn between which path to take. 

My fiance and I live in a mid-sized city, where the average single-family home will run around 300-400k and could rent upwards of 1500-2000, depending on size and neighborhood. We currently rent and we have considered taking advantage of first-time homebuyer financing to purchase a home in our city, live in it for a couple of years to build equity, then renting it out while we live elsewhere. We realize that this is not the fastest way to get into real estate investing, but would allow us to take advantage of a hot market while living in a house versus an apartment. 

The other option is continuing to rent in our city, but looking for cheaper homes further away to purchase an investment property. My concern here is managing a property further away, and finding a good deal on a house that is cheaper (100-150k). I feel like buying a house in this range may be a wreck and create more headaches than upside. 

Our long-term goal is to own several homes that produce passive income while we maintain our careers. I'd love to hear some perspectives on entrance strategy in this case. Thank you!

@Quintin Smith this is a question that I battle with myself whether to get an investment home or home to live in. I would get a home to live in because you can get it with 3.5% down if you go FHA. Renting it is always an option down the line. Buying a house as an investment is still a great option but down payment is higher, interest tends to be higher.

I would recommend buying a home to live in to start off. My thinking is that you will have a smaller down payment requirement (3.5 -5%) if you go that route, and you are growing equity on a home that is worth more in the long run. If you purchase an investment you will be required to put 20% - 30% down while the total value of the property will also be worth less 20 years from now than your primary resid. that you paid less cash for and would have greater value. May not be the cash flow win but your building greater long term equity.

Hi @Quintin Smith

I agree with @Nate Tew : buying a property to live in at 5% down is a solid way to go. If you put down 5% on a $400,000 property, that's approximately $20,000. When you factor in property taxes of 1% the appraised price, interest rate of 3.25% for 30 years, and annual insurance of approximately $500, your PITI (principal, interest, taxes, insurance) monthly payment comes out to be approximately $2,000.

I'm not sure how much you're paying in rent, but looking at the money that goes to "paying yourself" (principal) you're actually paying approximately $1,500 out of pocket. Of course, I would highly suggest house hacking, where you rent out a room or two (or three!) to mitigate that mortgage payment, AND you learn how to manage a property while deciding who gets to live with you.

I house hacked back when I was living in San Diego, but now I help other first time homebuyers and house hackers generate wealth and mitigate the liabilities of owning a house (interest, taxes, insurance, capital expenditures...). Now, my duplex in San Diego is an investment property, and I cash flow approximately $400/month after raising rents for 2 years, and appreciation has been a blessing as well! I don't know if you knew this already, but if you live in your house for 2+ years, the capital gains earned over the ownership period is TAX FREE! That's real estate, baby!

DM me if you have more questions! I'd be happy to help :)