Rent or Buy before Investment?

20 Replies

So I am currently renting a house in western Washington (Puyallup) while getting started in investing and wholesaling so I can earn enough cash to start further investing in my goal of rental properties.

My wife and I hope to eventually buy our current rental for our primary residence from the current owners who we are sure will be willing to sell it to us.

MY BIG QUESTION: Should I first use the cash to buy our house (most likely as a down payment on a conventional mortgage - and there is not much opportunity for house hacking unless I turn the detached garage into an accessory unit)  OR should I use it to invest in our first rental?

@Brendan Bruno

For the house you are in, depends on the price you are getting it at? It you are paying top of the market prices, then I would pass. If you can pick it up for 60/70% of ARV, then there are ways to buy the property with as little as 10% down and walk into the property with equity. Then in one years time frame (house will be seasoned), you could HELOC and use that money to buy another investment property or just sit there to protect your equity.

When buying an investment property, especially your first one, I would stay away from buying something that you have to put 20/25% down on. That takes a bunch of your liquid capital.

If you bought a Multi Family and house hacked, that could kill two birds with one stone.

@Timothy Tooker I don't plan on using my current residence as an investment property - it will be our primary residence. And I doubt that I will be able to purchase it for such a low price.

However, I have considered entering into a rent-to-own with the current owners to try and bring the final purchase price of the house down and then have instant equity once I purchase it. Once I'm ready to buy I could do a 203k loan, cash in on the extra equity from the ARV, and reinvest that for my own rental property.

Thoughts?

@Matt K. we have been renting this property for a while now and have a good relationship with its owners who to my knowledge are not serious investors. But you are partially right, my kids are growing up here and moving them to a new living situation is not an option anytime soon. I am trying to figure out how to make the best of this by fitting it into an investment plan.

Account Closed Thanks for the tip. The owner of our house is not a serious investor, I'm not sure what I've said to project that idea. 

And yes, I am familiar with rent-to-own and all of its benefits and drawbacks but we look after the house as if it were our own anyway. We see a lot of potential in this house and I believe it could have a huge ARV if we can capture it properly - which is why I am trying to fit it into an investment plan (plus yes I do have an affinity for it since I am fascinated by its architecture).

If you really "need" this house that you are RENTING the only way to ensure it's actually your house in the future is to buy it. If you aren't willing to make changes to the current living situation (which isn't a bad thing) then I would put investing on the back burner and focus on providing for your family. 

Now, if you were like hey we love the area, we like the house but would be open to moving if that meant we could start investing..... that's a different conversation. But as it stands I think you've already made the choice.

@Matt K. I agree with you which is why I am looking for solutions on the best way to go ABOUT buying it so it is mine in the future. I don't necessarily think any speculative discussion is off the table at this point.

I could buy this house (or any other one in the area) from the owners and have a regular mortgage and continue investing otherwise. What I am trying to think about is how I can possibly make this work as PART OF my entire investment scheme.

But it isn't part of your investment, it's your primary house. Where does paying full or over market value for a house make a "smart" investment. 

The smart investment play would be to rent or buy whichever is cheapest. It very well could be that your rent is at or below what your mortgage would be. If it wasn't you could find a similar home that would meet your needs but was a better value (be it cheaper, need rehab, multi family). 

You need 20% down for an investment so if you're paying market price.....you have a long ways to go to get some equity to pull any cash out. 

Let's all assume that there is the potential in this house to build very good equity and that I can, in fact, buy it for somewhat less than market value. And that after I buy it will be my primary residence with a mortgage cheaper than my current rent.

I'd like to get ideas on how to turn it into a boost for my other and/or future investments.

Thanks.

Then buy the house; borrow against the equity; and use that for your rental. 

But how are you getting this equity, if it's through rehab how are you funding that? If you're borrowing for the rehab that'll cut into your equity. You'd need to look into time frames for seasoning on a primary residence and you might also check LTV for cash out refi or HELOC.

Toss up some numbers and budget and you can get a better answer.

Originally posted by @Brendan Bruno :

So I am currently renting a house in western Washington (Puyallup) while getting started in investing and wholesaling so I can earn enough cash to start further investing in my goal of rental properties.

My wife and I hope to eventually buy our current rental for our primary residence from the current owners who we are sure will be willing to sell it to us.

MY BIG QUESTION: Should I first use the cash to buy our house (most likely as a down payment on a conventional mortgage - and there is not much opportunity for house hacking unless I turn the detached garage into an accessory unit)  OR should I use it to invest in our first rental?

 Consider doing the 3.5% down fha for house and a year later turn into rental or straight fha into a duplex, tri or quad and you are in business right away. You can do this 4 times. Now you have 4 to 16 units with very little down and less than the 20%-25% down each normally required otherwise.

Good luck! 

Originally posted by @Matt R.:
Originally posted by @Brendan Bruno:

So I am currently renting a house in western Washington (Puyallup) while getting started in investing and wholesaling so I can earn enough cash to start further investing in my goal of rental properties.

My wife and I hope to eventually buy our current rental for our primary residence from the current owners who we are sure will be willing to sell it to us.

MY BIG QUESTION: Should I first use the cash to buy our house (most likely as a down payment on a conventional mortgage - and there is not much opportunity for house hacking unless I turn the detached garage into an accessory unit)  OR should I use it to invest in our first rental?

 Consider doing the 3.5% down fha for house and a year later turn into rental or straight fha into a duplex, tri or quad and you are in business right away. You can do this 4 times. Now you have 4 to 16 units with very little down and less than the 20%-25% down each normally required otherwise.

Good luck! 

Originally posted by @Matt R. :
Originally posted by @Brendan Bruno:

So I am currently renting a house in western Washington (Puyallup) while getting started in investing and wholesaling so I can earn enough cash to start further investing in my goal of rental properties.

My wife and I hope to eventually buy our current rental for our primary residence from the current owners who we are sure will be willing to sell it to us.

MY BIG QUESTION: Should I first use the cash to buy our house (most likely as a down payment on a conventional mortgage - and there is not much opportunity for house hacking unless I turn the detached garage into an accessory unit)  OR should I use it to invest in our first rental?

 Consider doing the 3.5% down fha for house and a year later turn into rental or straight fha into a duplex, tri or quad and you are in business right away. You can do this 4 times. Now you have 4 to 16 units with very little down and less than the 20%-25% down each normally required otherwise.

Good luck! 

Great advice ... not sure if you are talking 4 times for FHA only, but if you are able to put more down to get conventional financing (perhaps with PMI that you can appraise out of if/when you build enough equity), then I believe if you structure it correctly you could do it 20 times (10 mortgages under your name, 10 under your wife's name) ... now you have 20x4-plexes = 80 units ... if that can't get you where you're going then you have some seriously large profit expectations or your units aren't that profitable, but if that be the case you could hop on over to commercial stuff after that.

Originally posted by @David Faulkner :
Originally posted by @Matt R.:
Originally posted by @Brendan Bruno:

So I am currently renting a house in western Washington (Puyallup) while getting started in investing and wholesaling so I can earn enough cash to start further investing in my goal of rental properties.

My wife and I hope to eventually buy our current rental for our primary residence from the current owners who we are sure will be willing to sell it to us.

MY BIG QUESTION: Should I first use the cash to buy our house (most likely as a down payment on a conventional mortgage - and there is not much opportunity for house hacking unless I turn the detached garage into an accessory unit)  OR should I use it to invest in our first rental?

 Consider doing the 3.5% down fha for house and a year later turn into rental or straight fha into a duplex, tri or quad and you are in business right away. You can do this 4 times. Now you have 4 to 16 units with very little down and less than the 20%-25% down each normally required otherwise.

Good luck! 

Great advice ... not sure if you are talking 4 times for FHA only, but if you are able to put more down to get conventional financing (perhaps with PMI that you can appraise out of if/when you build enough equity), then I believe if you structure it correctly you could do it 20 times (10 mortgages under your name, 10 under your wife's name) ... now you have 20x4-plexes = 80 units ... if that can't get you where you're going then you have some seriously large profit expectations or your units aren't that profitable, but if that be the case you could hop on over to commercial stuff after that.

I was just referring to the FHA max number of loans. I think there are 3% down conventional loans now too and 10 max for those loans or 10 per person works like you said. That might take one hell of a w2 at that level.

If I were you, I would go buy a 4-plex using and FHA loan. The down payment would be 3.5% and you can negotiate the seller to pay your closing costs, thereby only being into the purchase for the 3.5%. You live in one of the units for 1 year, cash flow during that year to build your nest egg back up, then rinse and repeat your way into another 4 -plex.

Its a great way to have the primary and the rental all at the same time with the lowest down payment your ever really going to find. Once you have done that a few times, you will have so many doors paying you cash flow (assuming you bought them at the right price) that you will be able to fund any of your purchases going forward with the cash flow that your getting from all the 4-plex's. 

Just my 2 cents!!!

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