Living in an apartment while investing? Good or bad?

25 Replies

Bring me your brutal criticism! It is always so darn helpful! Haha My fiancé and I just completed our first live in flip. Bought our home for $150k. Lived there during her 3 year masters degree. Renovated it and sold it this year for $243k. Sold for $243k -$14k closing cost -$30k Reno -$109k remaining mortgage We now have roughly $90k on hand. We have decided to flip another condo and purchase a rental simultaneously. We haven’t signed on any properties yet, but are actively looking. Rather than use our cash to buy a home for ourselves, we decided to move into an apartment and use all of the cash for investment properties. We like the idea of having cash reserves, apartment amenities, and zero maintenance. It makes sense to us to do this, but I’d love to here what people think of this strategy. Do you think renting an apartment to free up the cash is a good idea, or would you have purchased another live in flip? Or something completely different? I love brutal honesty, so don’t hold back!

My simple answer is small multi-family 2-4 units. You can leverage your cash best this way and give yourself a place to live without "pay rent". Plus I am not a huge fan of flipping condos. Volatility is much higher and HOA fees can really drag down your profits.

However, it depends on your situation.  I lived in Dallas before and can understand why the apartment amenities are nice.

For clarification.. You want to purchase a condo and rental but live in an a different rental then the potential one you plan on buying? 

I agree with the 2-4 unit and "house hacking". It will cut into your cash reserves initially but you should be able to recoup that by living for free. Plus you have a rental as well.

@Travis Stafford everyone's different, but I agree with your strategy and wish I had done it myself. I "flipped" the condo my fiancé and I we're living in and we cleared about 70K on it doing less that $2500 worth to work over the 15 months we lived there, (just painting and crazy appreciation in Somerville, MA). Instead of buying that condo or the single family I now live in, I could of bought 2-3 investment properties that paid my rent plus put a couple of grand/ month in our pockets. 

Had I known what I know now, back then I would have done what you're doing now. If REI investing is going to be a major source of income for you long term, in my opinion, there's not a whole lot of value in owning the place you live, until you're buying for school systems and children. That money can work a lot harder for you then paying down equity on the place you live.

I rent locally and invest my "down payment" money. It makes sense to me, I get the benefits of owning a home w/ out being tied down to it. To me the freedom I get w/ renting is far more valuable than the "net-worth" I'd make by owning my primary. Plus IF things went really really wrong.... I could always move into one of my rentals and make it my primary. 

Peter Sinclair, that’s correct. We are moving into an apartment this weekend. While we are living in he apartment we will be shopping for a flip as well as a rental property. We will not live in that property. We’d like to have a flip for more aggressive cash gains, but also want a rental for a more long term investment. I’ll also add that we are getting married, so living in another fixer upper while planning the wedding is not an option. Haha “Happy wife, happy life”. 😉

@Travis Stafford Great topic of conversation. It's something I've been thinking about lately too! I am currently "house-hacking" a tri-plex that needed cosmetic work. We live in one unit and the tenants in the other units pay for our mortgage, insurance, and taxes. Even though we are living for "free", we of course are doing lots of needed (and some elective) upgrades into the unit we are living in. That also means that we are spending potential investment cash and lots of time (we do everything ourselves) on upgrades that are nicer than we would provide a renter. Additionally, when our fridge breaks or the water heater goes out, we pay for it. I am glad we did it, because its fun to work on our place and get to pick everything out. However, if your main goal right now is to put all your $$ into investments, I think what your doing is a good idea. We have decided that if for whatever reason we move out of "house-hacking", we would probably rent (not buy) a single family home or upscale high-rise. Then we would use our $$ for a down payment on an investment property. 

I did live in flips to get started in real estate.  What you are doing is totally fine.  The tax benefits of live in flips are likely going away soon; so, other than not having a housing payment during the flip (which is a big benefit...and a big hassle depending on the rehab and your family situation), there are no other benefits.

If you are not interested in house hacking a multi then renting is your best financial option as a growing investor. Fastest path to savings and least expensive form of housing. Home ownership is a life style decision a liability and a over all drain on financial resources.

Buy a personal home when you are earning so much money that you have extra to throw away.

If you also enjoy renting then you are already living the good life.

@Travis Stafford I am in LA and I rent and buy flips all the time. I love my amenities, no maintenance, and freedom of moving every 12 months. The downpayment and mortgage would hurt my investment options if I bought a SFR now.

People ask me all time...why do you rent and flip's because I can have my money work better for me outside of a home I live in and own. And for the lifestyle I have in my apartment, the condo's mortgage would be double of what I am paying for rent. 



So, let me get this want to pay another investor to live in his rental, and then purchase a fix and flip and let that sit vacant while you renovate it and pay the mortgage...and this is considered saving??

I think you had it right the first time.  House hack a property to live in, renovate and flip.  Trade up this time if desired.  Look into a duplex or any other 2-4 unit to move into that would also have other tenants.  This will FEEL like saving as the other tenants will most likely cover the lion's share of your mortgage and expenses.

That would be my vote.

@Travis Stafford To me it doesn't make sense to sell you properties take you profit and rent a apartment to "save" because then technically your spending money on rent, utilities, etc. I would try to find a duplex or triplex.  Live in one of the apartments. Rent the other two out so you can most likely live for free or for very little, while building equity and positive cash flow.  Otherwise, it just seems like you are defeating the purpose of what you are trying to accomplish.

I think if it works for you then go for it. You are buying flexibility when you rent, while maintaining your investment strategy. I don't look at the interest amount on a mortgage statement as a loss to worry about, it's the cost of doing business. Plus if it makes your spouse happy then its cheaper than a divorce. 

Hey @Travis Stafford just a quick tip to mention and tag someone type in the "@" button followed by the letters in their name because if not they will not see your replies. Now to your story my opinion is that what you are doing wouldn't be what I would do. You are screwing yourself long term to be comfortable. You should be working your arse off right now so you can relax and be comfy later. In my opinion it makes no sense to be giving away money you could be using to make yourself wealthy and acquire properties to someone else and make them even more money. You should do what you did the first time and live in the house or 2-4 unit you purchased. Not only will the down payment be lower but you will be living for free and be building WEALTH and lifetime cash flow which in my opinion is what you should be focused on. This is just my opinion but if you would rather have comfort and believe that the rent you are paying is best spent on an apartment that's your decision. Good luck and congrats on taking action!

@Travis Stafford As any good real estate investor would depends.

What are your monthly carrying costs on the condo? What is your monthly rent on the apartment? How long would it take you to flip the condo if it was vacant? If you lived in it?

In general, I'm in favor of renting your primary residence and putting what would have been your downpayment to work in other investments earning you money. Of course I say this as someone who owns their primary residence for purely non-financial reasons. My family gets more "utility" you might say out of owning our home than the alternative of earning more money but renting. Something you can't measure with ROI.

I will say that one of the primary benefits of live-in flips is the Section 121 exclusion on your taxes (no capital gains taxes on sale if you live in it for at least 2 years). However, while the 2018 tax plan has not been implemented, both the House and Senate version amend the exclusion so that you have to live in the house for at least 5 years, effectively killing this benefit.

@James Thomas Nakashian thanks for the feedback! We originally were looking for a multi-family in Dallas for us to live in. Unfortunately the units that we could afford (while keeping cash reserves) were in less than desirable areas. The units in areas that we like would wipe out the majority of our cash.

We believe we can get 1-3 flips done this year. We are hoping that will raise us enough capital to purchase a multi-family unit while still having reserves.

@Jimmy Dudley Haha, I think you might be one of the few that caught the happy spouse part. With the wedding coming up and her starting a new career she is very nervous about the risks involved with REI. I’m doing my best to compromise until I can prove to her the benefits of REI.

@Michael Guzik how exactly is he screwing himself? He's invested his money outside of his primary house.... How exactly is he throwing money away? I get that every situation is different but it's entirely possible to make a wise investment and over long term have it be a smart play even if your primary home is rented...

I'll give you an example

Primary- 2500 mo rent, Landlord Purchase Price: 575k and 600 mo HOA.
Move in cost at worst:first, last, and 1 mo sec deposit. $7,500

Now, if I was to buy that vs rent it I'd need at least 24k PLUS closing costs. Then P&I is 100 more then I pay in rent and doesn't include: Taxes, PMI, Insurance, HOA. That's another 2k+ a month. So now, I'm paying basically 4500+ a month for the same place. I also paid 22,500 for this privileged. With everything included, I'd need to put about 45% down (~258k) to get my payment the same as rent.

260k gets me easily 2600 mo in rent in the midwest. That's not even leveraged and at 1% paid off. So just using the down payment needed to get the same price I have in rent get's me paid off property that produces income to cover most my rent. If I leverage it I can likely cover my rent and still have other people paying off the mortgage.... and a back up place to live in case things went south.... 

@Cara Lonsdale I can totally see where you are coming from with the “pay another investor rent” while my flip is vacant. I very much agree that the rent we pay is money lost.

The properties that we are purchasing for flips will require extensive work and would be very difficult to live in simultaneously. We also would not be living in them long enough to see the tax benefits. Our goal is to turn the same “down payment” money over a few times this year. Our concern with doing another live in flip, is that we would be tied to that property for at least a year. Our down payment and renovation cost would be stuck in the home and we couldn’t turn it over multiple times.

We are factoring our rent money into our flip projects to show what our real profit is.

@Matt K. I believe that buying a primary residence is foolish as Grant Cardone always says however that's just my opinion and I believe that @Cara Lonsdale put it much more eloquently in her post! I'm not sure after re-reading it what he is asking so maybe we are talking about two different interpretations of his post. 

Originally posted by @Michael Guzik :

@Matt K. I believe that buying a primary residence is foolish as Grant Cardone always says however that's just my opinion and I believe that @Cara Lonsdale put it much more eloquently in her post! I'm not sure after re-reading it what he is asking so maybe we are talking about two different interpretations of his post. 

 He's asking if it's stupid to live in an apartment (and pay rent) to use that money to invest in flips/rentals, instead of buying a primary. Or at least that's how I read it

Not every investor wants to live in a rental quality home, some of which require renovations, in proximity to other renters. 

It is a life style choice much along the same lines as home ownership.

Since the majority of a mortgage payment is interest and you add to that maintenance and the time to maintain a home renting is less costly and less work. Paying rent is not wasted if you consider the savings can be put toward investing rather than sinking it into a home as dead equity. 

@Matt K. Okay yes then we are on the same page. I think he should just house hack or do a live in flip but I don't have a wife or children so that's why I would do it. I know that everyone has different criteria and goals though that's why I told him it's just my opinion. I view a primary residence as a liability not an asset but it's all about perspective. I do believe though that an apartment is better than buying a house, but I believe that living in one of your properties and renting out the other units or rooms is the best case scenario.

@Matt K. @Michael Guzik I think y’all are on the same page now. We sold our live in flip. We are now moving into an apartment (renting) instead of buying a new primary residence. We will now try and flip 1-3 homes while renting an apartment. While doing the flip, we may also purchase a property to place renters in (not us) as more of a long term investment. It would just depend on the neighborhood and if it cash flows. We would stay renting an apartment while doing this.

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