Buying first home and rental property at the same time - Help!

10 Replies

My husband and I are current renters and never owned a home. We are both just under 30 years old, I have a steady, decent paying job, excellent credit, but his career is uncertain and we both have a good amount of student loans. We want to buy our first home and a rental at the same time. We have looked at Duplexes, but most are outside our price point. We are in the Orlando area, looking to buy each place around $50,000 or less. Most of these are condos, which do have higher HOA and condo fees. We want to buy under our means since his income is uncertain for now, and he wants to keep debt as low as possible. We have talked with a few banks, who don't like that we are buying 2 properties at once, but if the numbers work, I don't see why not.

We are new to this, and unsure the best way to get started.  Our ultimate goal is to acquire buy and hold properties slowly, paying off as much debt as we can, which is another reason for the low price point.  We could put 20-30K down depending on the amount of work the places need.  So the combined loans would be about 70-80k. Our initial plan was to take the cash flow from the rental and put it to paying off the mortgage, and make our own monthly contributions of $1000 a month, even if it's above our mortgage, again to pay it down faster.

I realize paying off the loans gives us less leverage and would take a lot longer to buy more properties, but my husband can't stand even "good debt" so we'd rather pay that off first.

I would appreciate any words of wisdom/advice.  I've listened to 88 podcasts so far, which are awesome, but so many strategies makes my head spin!  

@Meghan Helbick I'm not familiar with your market so cannot comment on the prices but I think you should consider a single property to start because it will be easier to get a single loan.  If Duplex prices are too high, would you consider renting out a room of your home or the basement of something like a townhouse?

With two loans, also come two sets of closing costs which will further add to your costs. 

Good luck.

@Matt Madalis thank you for your input.  We are also starting to look at inexpensive duplexes, as that seems the best way to go.  

Another option is to continue renting for yourself and just buy the rental property as an investment which I feel is way more important. The purchase of the house for yourself is no investment and therefore takes a backseat in my opinion. This is a John Schaub type of approach that I like.

Another option is to pay as much cash as possible in either the rental or your own home to get as much equity as possible, and then take out a HELOC to buy the other property.

I would be very careful about the HOA fees if they are in the rental property... a lot of those HOA boards are just guys on power trips that may have a lot of restrictions or add new fees suddenly that will kill your cash flow.

Good luck!

It sounds like you want to purchase 2 properties simultaneously.  Unless there is some direct advantage you are negotiating, you will find it much easier to purchase your primary residence as a single transaction.  And then go find your rental property.  Telling the lender you are getting another loan on another property will definitely raise red flags for them.  My recommendation is to get one completed, then go to work on the next one. 

@Kyle Scholnick thank you! That's an option for sure, just hate "throwing money away" each month on rent, but at least it would let us get started with investing. And yes, it would be great to get a good deal without having an HOA. Seems like they are all over our area!

@Curtis Bidwell we will definitely keep your advise in mind.  We may buy a rental first, get tenants moved in, then look for our own if feasible.  Unless of course we get into a duplex, which would solve that problem!  

I agree with @Matt Madalis . I have a friend who actually bought his first house with the intention of renting out two of the bedrooms. He was single at the time but he was able to pay off all of his student loans, credit card debt, and car loans after 5 years. Now the only debt he has is his mortgage. He told me just refinanced his house and he's got about $100K in paper equity. That's a pretty solid 5 yr return if you ask me.

Otherwise, I would suggest doing the duplex option. I don't think banks would be so open to lending for an investment propery with someone that has unstable income. Also, as others have suggested, it's additional cost due to closing costs of two separate transactions.

A 4th option might be a partnership. You might try and find someone who you put up the money and then you would take on the role of manager and manage the propery. That way you might not even need a bank loan at all.

A 5th option might be a Hard Money Loan. I've personally never done one of those but there are investors on BP that swear by them. they are expensive with high interest rates and you pay a lot up front in terms of loan "points" but you don't need to go through the exhausting underwriting process that banks do, and you can get the money in a few days if everything checks out with the Hard Money Lender and the numbers work. The idea then would be to do a rate and term refiance into a traditional loan with a bank. It's much easier to refiance one you own the property than it is to get the loan.

Thanks for the ideas @Alexander Merritt . I think our last resort would be to rent rooms of our own home since we are newly married and I need a room for an office.  Can you explain more about refinancing into a traditional loan from a hard money loan?  I thought of hard money loans as something for flippers due to the high rates and they can do more short term, but I haven't heard about using them for an initial mortgage loan.


Remember, that is a very common myth that you are "throwing away money on rent." Yes if you rent a 4k dollar a month house as opposed to buying a 100k dollar one, you will be wasting money, but if you are renting something comparable, you are certainly not throwing money away. Remember that owning a house is paying rent too. You pay the town rent in property tax for using their land, you pay interest on your mortgage...that's rent for using the pay insurance...that's rent for protecting your house and of course don't forget origination fees, closing fees, title insurance, higher utilities, etc.

I personally rent in my area and I get a steal. I put all my money towards investing.

There is my favorite myth that buying a house is building equity, but renting is throwing money away. I am getting utility out of paying rent and building equity in something else, just not my home. I'm using stocks, real estate etc. If you own a house, you are just building equity in the house which we all know houses only appreciate with the rate of inflation on average over the past century.

No shame in renting, trust me, buying a home you are not flipping or renting out is just a huge purchase. I'm an investor, I rent and put all my money towards building my net worth. Hope that helps!

A Hard Money Loan (HML) is just a loan. Refinancing it is really no different than refinancing a traditional mortgage. While the up front fees and APR is higher, the biggest advantage is the loan criteria (think bank underwriting process) is super fast and way less complicated. I've heard investors on BP get a HML even the same day (normally a few days/weeks compared to a month or more for a traditional bank). Now, that's of course dependant on your relationship with the HML and the numbers/investment package you present to them.

Normally what others have said on BP is that they use the HML as if they were doing a flip. In essence they actually do a flip, but instead of selling it for profit, they keep it and rent it out. As I said before HMLs are more expensive up front with increased fees from "points" and a higher interest rate and repayment terms (usually between 6-12 months). Normally the sale of the property from the flip would be enough to pay off the HML. But if you keep it, then you need some other way to pay back the HML when it is due; hence the refinance to the traditional loan. Also, you'd want to refinance it ASAP anyways, since it has a much higher interest rate than a traditional 30yr fixed loan.

Again I've not done this strategy yet, but others have used it with great success.

@Kyle Scholnick you make a good point, and really the only reason we would buy our own place is to build that equity, but it would put our debt to income ratio way higher.  If we don't find a duplex, that's probably the best option.  Thank you!

Thanks for the explanation @Alexander Merritt !

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