What route should I take?

Question

I have an interesting situation where I'm starting to get overloaded with information I'm finding through research with the dynamics & variables of my future purchase.

I'm searching to buy a home for myself for the 1st time - I co-own 3 rental properties with a friend - and trying to take advantage of 1st time buyer benefits. Looking down the road I will probably only own this home 3-4 years before I upgrade/move locations & have read that you should handle loans differently if you don't plan on being there long-term. On top of that, my friend who I'm in business with 50/50 is a RE agent & we like the idea of buying the home I would purchase for myself to make as 1 of our rentals as soon as I'm ready to sell it.

Knowing this, can I get some feedback on how you would handle this situation? I'm considering a duplex with FHA living in it for 1 year, renting the other half then selling to me & my friends business but I don't like the locations of the duplexes I've found thus far.

Any help/advice would be greatly appreciated!

Nate Garrett · Answer

Hi Matt Lawrence, I don't see how renting will provide more capital for purchasing rental properties. As you're probably aware, the monthly cost of renting is higher than owning in Tulsa; that's what makes it a good market for real estate investors.

If you are going to be staying in Tulsa for the long-term, why not buy a good rental property that you will initially live in, and then continue renting it once you move into your next home? You could use a low-down FHA or Rural Development loan to purchase a discounted investment property (bank-owned, short sale, foreclosure) and you will qualify for the lower owner occupant interest rate.

Nate

Matt Lawrence · Answer

Thanks for the welcome Nate, would u chose that over renting now to put more $ towards buying more properties as Ali suggested?

Nate Garrett · Answer

Hi Matt Lawrence, great to have a fellow Tulsan on the board.

Don't buy when you're unmarried thinking it will be your "family" home. For now, buy a small, livable property in a good neighborhood (3/2/2 or a duplex is fine, too) that will make a great rental a few years down the road. You'll get the owner occupant interest rate which right now is extremely low. Then when you get married you can move to your family home and rent the place you buy now.

The wife always chooses the neighborhood and house that you move into once you get married. Trust me.

Regards,

Nate

Matt Lawrence · Answer

Jason - "Is it more worth it for you to live in a great area and "waste"(using your word) your money or can you sacrifice location for a year and live in a duplex and secure a great rental for yourself? "

That's a great question, it seems like I need to take a step back & think things more in depth. I can definitely sacrifice for a year+ but I need to think on the other side if its worth targeting a family home in the right location where I wouldn't have to move after starting a family where I could stay there long enough to be "worth it" for the money I'm using

Jason Burton · Answer

I kind of like the idea of buying a duplex with an owner occupied loan. I wish I could go back in time and start with that. An owner occupied loan is one way to get into a property with a lot of other people's money and less of your own.

If the duplexes aren't in areas that you want to live then I think you should take Ali's advice and rent, using the money to buy an investment. Is it more worth it for you to live in a great area and "waste"(using your word) your money or can you sacrifice location for a year and live in a duplex and secure a great rental for yourself? Living in a duplex can get you a great rental to start with and you can gain a lot of experience from being the landlord. Something else to think about: If you are single you can live in the less desirable locations. Once you have a wife and/or kids you might not want to live in those same areas. Just my thoughts on it. Good luck. Let us know what you do.

Matt Lawrence · Answer

I live in tulsa, ok and do my investments there as well. Yea that makes a big difference in my decision if it takes 5+ years to make it worth while. Im 29 & just assumed I would be married & starting family in about 4 years which usually equates to moving location/size of home.

I've always been a renter & just have a hard time feeling like I'm wasting my money as I will never get it back that way. What about the difference in what I would lose in renting for 4 years @600 (28,800) & buying a $120k home with 4500 closing costs? Maybe I lose money either way but lose less in buying a home @ a certain price than renting? I'm not sure how to measure that.

Thanks for the input Ali

Ali Boone · Answer

What market/city do you live in? That makes a big difference as far as your (good) investing options.

My other question would be, if you only plan to be there 3-4 years, why buy for yourself at all and not just invest that money? Most often, it takes a minimum of 5 years to even make a home purchase worth it (and even then it's debatable) because of the closing costs and interest.

I'd say forget about buying for yourself. Go live somewhere fun and that you will like, rent there, and use the buying money for more investments.