Bad idea to buy single family home as first time buyer, instead of renting if need to save for dream home?

Question

Hey BP members!

In this article Brandon advise to buy a duplex instead of a single family home if I want to avoid loosing money, and earn money on the property. Is it really that bad an idea to buy a home?

http://realestateinyourtwenties.com/bAlog/your-first-investment-property-should-be/

My wife and I are living in Denmar, Europe, where I'm from. My wife is from Houston, TX. We are soon moving to Austin, TX, and just started to pay off school loan and save up for a downpayment for our dream home, which can take anything from 3-5 years. With a kid on it's way and hopefully a few more to come we need space. We have never bought a home before, but we thought it would be a smart move to buy a cheaper home (170K) in Austin, TX, instead of renting all the time we are saving up to buy a 300K home.

So what I'm trying to figure out is, if it would be smartest to rent for 5 years (and through money out of the window), or buy enable to potentially avoid to loose money to a renter while paying off school loans and save for downpayment. We're not (my wife isn't) much for the duplex idea.

I hope I make myself clear enough. English isn't my native language, so it can be difficult to explain myself sometimes.

Ali Boone · Answer

http://www.biggerpockets.com/renewsblog/2014/01/18/buy-house-buy-investment-property/

David Krulac · Answer

@Chris Frydenlund I've known some investors who own rental property sometimes a fair amount of rental property, but don't own a primary residence and actually rent their primary from somebody else. I even knew an investor who lived in a 4 unit he owned but the title was in an entity name and there was outside property management and the tenants didn't know he was the owner. But these cases are small numbers and most investors do buy their primary, but there's nothing to say you have to do that first. If you do buy a primary first, look at it from the same perspective as you would an investment. good location, bargain price, potential for appreciation, and it rented would be positive cash flow. That last criteria might be the most difficult depending on your market.

Chris Frydenlund · Answer

Great article Ali. Now it's difficult for me to even think about buying my own single family home ever, but I guess I can't avoid it at some point.

Chris Frydenlund · Answer

I did a smaller calculation and convinced my wife to think about the idea of getting a duplex. From my calculation a 200K single family home with a 5% down payment will cost us around 94K after 5 yrs of mortgage payment ($1403/mo). If we could rent out half a duplex for the same amount (200K) and they pay half, which probably is bargain for the tenant, we could potentially save 47K, which is more than enough for a down payment. But from what I see on different websites showing homes for sale, you don't get much for 200K in Austin area. I'm even including the area north of Austin (Cedar Park, Rock Round, and Plfugerville). Hopefully we'll be allowed to take a bigger loan by the time we need it. What do you, @Jeff Clawson, think it's possible to find a duplex where the part that we'll be living in has 3 bedrooms for 200K? Does that seem realistic?

Charles Morgan · Answer

Keeping your wife happy is indeed important. Hopefully the promise of being able to save money faster and get into your "Dream Home" quicker will persuade her. Perhaps a spreadsheet of the difference or maybe just a quick calculation in a notebook will help convince her. By the way, your "Dream Home" will probably not be your last as your rental income goes up and you can afford the "Dream Dream Home"! I started in a 3bed/2b that we upgraded to 4bed/2b, I now live in a 6bed/2b and am looking for the next one. Good luck.

Andy Robison · Answer

It vastly depends on your end goals. A duplex may not be the best solution as far as your wife is concerned. However not paying any mortgage/rent over the course of years and starting your investment out early may pay off huge dividends in the long run. If she is dead set agianst that, you could try and find a house that needs a bit of fixing up that you could do over the years get some sweat equity out of it when your ready to move out and have a good rental or a decent chunk of profit when you sell it. There are many ways to skin the cat. You have to decide what is best for you and your situation. Me personally I just bought a duplex for myself and the girl with the promise that we wont stay in it for more than 5 years. During that 5 years I'll be expanding my rental properties and hopefully not be paying any of my own income into where I live minus utilites. This will free up my personal income to expand my rental "empire" and afford to go on the occasional vacation/show/insert something the girl wants to do on a weekend here.

Andy Luick · Answer

You write just fine Chris. If you and your wife are sure you are going to be remaining in the house for a few years....definitely buy and talk to someone in the local Austin market like Jeff about the options. Renting is just a waste. The duplex idea isn't a bad one especially if you do shared housing on one of the units and keep the other for yourselves. You'll likely live for free that way....and who doesn't love free. Austin is an awesome town...growing but I think the market there is kind of tight....again ask someone like Jeff on that topic.

Jeff Clawson · Answer

Chris, It is not a bad idea to buy a starter home first, then move up to your dream home in 5 years. My first house that I lived in, I bought for $140,000. Sold it for $180,000 5 years later, and the tax free gain provided a substantial downpayment for my next, much larger house.