Buying a primary residence that is also a first investment

Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes

4y

First of all, I'm sorry for the loss of your grandma.

You ask some good questions about your circumstances.

a) Would BRRRR method work similar for primary vs investment - Yes. People use this strategy on both primary residences and investment properties. We're talking everything from a single family home to a 100 unit apartment complex

b) Even though you're starting with decent capital, would getting a hard money or 203 loan be a good move - Yes. In my opinion, hang onto as much of that $100k as you can. My strategy as long as I've been doing this is to put as little of my own money into all of my deals, and that strategy have been very helpful in terms of scaling my business.

c) Should you start an LLC - You're not going to be able to get a regular conventional or FHA loan if you own your property within an LLC. You'll need to buy it in your name. Some people transfer to an LLC after purchase, but there is something called a "due on sale clause" to be concerned with. Consult with an attorney on this one.

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Matthew Balter

Real Estate Agent · Portsmouth NH · Member since 2020 · 13 posts · 6 votes

4y

@Anna Marcotte ,

I may not be the best person to answer your 3 questions as I'm also not the most experienced investor but I can give my take. I also went through a similar experience when I purchased my 1st property last summer.

I live in the seacoast NH where property values have skyrocketed. The town I live in any duplex is at least 750k or higher so that was unattainable for me. I decided to buy a place where I could house hack by renting out rooms instead (although you have to be willing to live with other people). I was able to take advantage of a first time homebuyer purchase and put less money into the house and was still be able to get it. I went this route to save more money for the rehab/maintenance needed as well as the fact I would need less money to save up for my 2nd property, because I don't necessarily need to invest in the town I want to live in (cheaper markets nearby).

A) The BRRRR method works the same either way if the numbers work. The only benefit of it being your primary house is you can put less money down to acquire the property. When you refinance out you can buy a new house to be your primary resident and take advantage of your second property being a residence as opposed to a investment property (turn your first house into a rental).

B) If your doing a primary residence you'll be better off using your own money as there is less people involved in the house you're currently living in. If you go the investment property route you have both options but it'll be tougher to find hard money lenders as a new investor and if you do they may be unfavorable terms.

C) I know people that have done LLC's on their primary residence but it was more as a liability shelter if they were renting out other units or rooms. I personally have it in my name and not an LLC. Although you should look into the terms of your mortgage because if you try to switch it later to an LLC some banks will have that set off the acceleration clause since it's technically changes names. I would be careful asking the bank about that as well because it will flag you as someone trying to be an investor but take advantage of a residential loan.

Like I said take my info with a grain of salt but that's what I've experienced / seen in my time in REI so far.

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Chris Allen

Temple, TX · Member since 2018 · 307 posts · 215 votes

4y

Quote from @Anna Marcotte:

Good morning and happy Wednesday,

Quick background before we get to the dilemma: I am 27 years old, I work as a full time nurse in an ER, I received a small inheritance when my grandma passed away of 100k. I live in Point Pleasant/brick, NJ (the jersey shore area). I currently rent an apartment with my s/o and my half of the payment is $750. My goals with REI are (as mostly everyone says) gaining financial freedom, being able to leave the traditional w2 job, and be in real estate full time. I am also in the process of getting my real estate salesperson license.

I have been going back and forth with the decision to either a) buy a primary residence as my first purchase, or b) continue being a renter and start acquiring investment properties while my cost of living is low. The *best* choice would be to buy a duplex/multifamily property, however they are extremely hard to find where I live.

Through weighing my options, it seems like my next best option would be to BRRRR a primary residence and with my cash out refi I can start investing in other properties. Therefore I have a home of my own while also being able to continue on my investing journey.

My questions for the experienced:

a) Would the BRRRR method work similarly for a primary vs an investment property (main difference is I'm the renter)?

b) Even though I am starting with a decent capital, would getting hard money lender or 203 b loan be a smart move so I don't eat through my entire 100k?

c) Last question, I've seen a lot of benefits from starting a LLC and buying properties under it. Could I also do that for a primary residence or would it not serve the same purposes as starting one strictly for investment properties?

Sorry if this was long winded. I have weighed out a lot of options, done research, but I always like to get opinions from those who have experienced this situation or something similar. Thank you in advance!

Hi there Anna, I am sorry to hear about your loss.

I think Scott E. Was spot on in what he said, so I'll try and just tell you what I've done and maybe give you another option to think about.

- I purchased my duplex with FHA, fixed up the inside on both sides, and refinanced a year later into a conventional mortgage. While I wasn't able to pull all my money back out, I was able to free up my FHA to use again, and dropped my PMI.

- If you decide to go with option A, you could look into FHA 203(k) loan if you want to buy a "fixer-upper". Otherwise, buying a single family and renting out rooms or a garage apartment/ADU would be a good option as well.

- Another option would be to buy a "vacation home" and run it as a STR. I purchased a cabin in Tennessee for 10% down, and manage it from Texas. I work as a Travel ICU nurse as well, so i can attest that it is very doable to manage remotely.

- I would also consider looking to purchase investment properties in other markets where you may be ablw to get more bang for your buck. Read David Greene Long Distance Real Estate Investing.

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Buying a primary residence that is also a first investment

Buying a primary residence that is also a first investment

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