Author Topic: Buying first home... Investment property or not?  (Read 2180 times)

georgek

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Buying first home... Investment property or not?
« on: June 03, 2016, 08:42:21 AM »
My husband and I are searching for our first home and have not found what we are looking for. We don't have any kids yet, but planning to start a family in a year or 2. We live in a smaller town (15,000 people) but the rent market is unreal.  Rental properties hit the market and are gone within a week.  Properties that would have a mortgage payment of $500 are renting out for $800-900.  We have not found our ideal first home and are now starting to open up to the idea of buying a smaller/cheaper house that would be a good rental property.  We could buy it, pay it off while living in it, and then rent it out and buy our ideal house. Did anyone buy their first house with this plan?  How did it work out?  Thanks!

J Boogie

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Re: Buying first home... Investment property or not?
« Reply #1 on: June 03, 2016, 02:07:47 PM »
During your working years, I think it's wise to avoid buying what I'd call a "dream" home, IE a home that doesn't cash flow as a rental. 


That's part of why I chose to buy a duplex.  We were able to find a duplex in a great neighborhood where a SFH wouldn't be quite as budget friendly and wouldn't cash flow very well if we were to move.

Depending on your city, it can be tough to find a cash flowing property that you would want to live in.  You could buy a fixer upper or go with a duplex, or both like me.  Sounds like you've got a good plan, best of luck.

Socmonkey

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Re: Buying first home... Investment property or not?
« Reply #2 on: June 13, 2016, 10:59:25 AM »
If you buy your first home with this mindset, you have a great chance to avoid any perils that life may throw at you. One of the great advantages of renting is being able to move away when you wish. If you buy a house to live in that also cash flows to the rules of a rental, you gain that advantage as well.

What J Boogie says is true, it can sometimes be hard to find a decent place that cash flows. A fixer upper is a good bet, the "ugliest house on the block" type.

Being in the military for awhile, I have seen the trouble that buying a "dream home" has caused some of my co-workers a few years back. Rental prices didn't drop during that time (2008-2010), but they bought too much house to cash flow and the value had plummeted. They were sometimes stuck paying two mortgages.

MakeSmarterDecisions

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Re: Buying first home... Investment property or not?
« Reply #3 on: June 13, 2016, 11:29:45 AM »
Great advice so far.  I bought a small ranch for my first home and then upgraded about 5 years later to a still reasonable (not "dream home") place with a little more room. I was able to rent out the first house and it covered the mortgage and expenses - with a little cash flow too. If I could do it again, I would have found a duplex in a nice neighborhood though. We have 10 rental units now and I wish I would have started with an owner-occupant property to begin with.  Good luck!

K-ice

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Re: Buying first home... Investment property or not?
« Reply #4 on: June 13, 2016, 12:19:24 PM »
...
Properties that would have a mortgage payment of $500 are renting out for $800-900. We have not found our ideal first home and are now starting to open up to the idea of buying a smaller/cheaper house that would be a good rental property.  We could buy it, pay it off while living in it, and then rent it out and buy our ideal house. Did anyone buy their first house with this plan?  How did it work out?  Thanks!

I just bolded the one phrase. Be careful getting only $800 on a home with a $500 mortgage may not be cash flow positive after city tax, income tax, utilities, maintenance, insurance, HOA, vacancies and management fees. I would target closer to the $900-$1000 range but it requires some number crunching to be sure. 
 
Yes I think it is a good idea to purchase a property that you can rent & live in today like duplex or home with a basement suite.  There is no rush to get the dream home, so it could also be something smaller that you plan to rent out later.

The bonus with renting out part of the home now is that you get a great hands on landlord experience. I also find that you attract quality tenants (& parents willing to co-sign) when you say the owners are just above so this is a quiet unit.

Our first place was like a duplex where we lived above and rented below.  The tenants covered the mortgage costs while we covered all the other expenses. So roughly a 50-50 share of all expenses, but our unit was nicer ;). I have heard of people living for "free" with tenants but I think that is quite difficult to find any deals like that. We now live in our forever home, it kind-of has a basement rental option, and a true mustacian would probably rent it out, but we like the space.  We still have the duplex and rent it all out with just under $1000 cash-flow per month.

I am happy with what we did but wish we had started even earlier and bought a small condo about 5 years before the duplex instead of renting all that time.

Our Ideal Plan:
Year 0 Condo (live in with roommate, wish we had done this)
Year 5 Duplex (Live in half for 5y, good deal, great experience)
Year 10 Home (Live alone, keep renting the others)
Year 15 Multi-plex (Plan to do this soon)
 

Drifterrider

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Re: Buying first home... Investment property or not?
« Reply #5 on: June 16, 2016, 12:14:12 PM »
I would ask how long you intend to remain in that small town?  If it is a short period of time, you are looking for your first rental that you can also live in. 

SwordGuy

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Re: Buying first home... Investment property or not?
« Reply #6 on: June 22, 2016, 10:09:40 PM »
My husband and I are searching for our first home and have not found what we are looking for. We don't have any kids yet, but planning to start a family in a year or 2. We live in a smaller town (15,000 people) but the rent market is unreal.  Rental properties hit the market and are gone within a week.  Properties that would have a mortgage payment of $500 are renting out for $800-900.  We have not found our ideal first home and are now starting to open up to the idea of buying a smaller/cheaper house that would be a good rental property.  We could buy it, pay it off while living in it, and then rent it out and buy our ideal house. Did anyone buy their first house with this plan?  How did it work out?  Thanks!

If the house has a mortgage payment of $500 and is only renting out for $800 it is UNDER-PRICED.

You need to learn how to buy a rental property AS a rental property.  If you choose to live in it before you rent it out, that's fine.

Buying a house to live in at retail prices and then trying to rent it out afterwards only works out if you are lucky.

Check the sticky-threads in this forum for good books to learn more before you buy.

In particular, I recommend "What every real estate investor needs to know about cashflow" by Frank Gallinelli.

clarkfan1979

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Re: Buying first home... Investment property or not?
« Reply #7 on: June 24, 2016, 02:32:44 PM »
My husband and I are searching for our first home and have not found what we are looking for. We don't have any kids yet, but planning to start a family in a year or 2. We live in a smaller town (15,000 people) but the rent market is unreal.  Rental properties hit the market and are gone within a week.  Properties that would have a mortgage payment of $500 are renting out for $800-900.  We have not found our ideal first home and are now starting to open up to the idea of buying a smaller/cheaper house that would be a good rental property.  We could buy it, pay it off while living in it, and then rent it out and buy our ideal house. Did anyone buy their first house with this plan?  How did it work out?  Thanks!

We did this two times. We now have two rentals that each have $1000/month of cash flow. We are in an apartment and saving for our 3rd house. Many of my friends sold their first house to buy their bigger second house. They simply bought based on what they personally want in a house. Now they are forced to work a lot of hours to afford their larger mortgage payment.