First Purchase: Buy or Invest Advice?

Question

For some background, I am single in my early 30's and interested in making my first purchase or investment into the new year.

Many of my friends (married) are buying their first homes, and I want to start building my future as well. The San Diego market has appreciated dramatically where home prices are 50% higher than they were just in March of 2021. So I am trying to decide what makes the most sense for me and my situation.

Is it a better option to obtain your first house to eliminate rent and build equity in your own home first? Or is it better to build an investment portfolio and look at a house down the road? Ultimately, I don't NEED a house/condo right now, although I do want one and a place I can call home.

Ideally, I'd like to invest in my local area and find a duplex that I can owner-occupy, but again the market down here is so crazy. I'm not even sure I can do that, let alone a SFH for purchase.

I am thinking about investing OOS to build my portfolio, and then purchase.. But investing OOS intimidates me by not understanding the local area as much and relying on obtaining quality agents, contractors, and potentially property management.

Does anyone have any sound advice for the best step in securing a long-term financial future for someone in my position given my location/circumstances (San Diego,CA)?

Ben Capone · Answer

Bryan - for what my two cents worth, and I am by no means an expert, I would say invest in San Diego if you can make it work. You're right - Home values have skyrocketed in the past year and a half and with Big Tech and Pharmacy boom starting to take over and relocate here I don't see it slowing down anytime soon. These companies are paying their employees $$$$ (Think SF Bay Area few years ago). Factor that in with everything else San Diego already has to offer. I got my first property Oct. 2020 and watched it grow 35 percent YTD. I stretched every dollar I had with my friend to make it work cause the idea of paying someone's mortgage for them killed us. 11 Months later, we just closed on our 2nd place and are renting out our first property cash flow positive. Again just my thoughts and current situation. Find a realtor who will go above and beyond to make your offer stand out against all the incoming cash only offers. Scour the MLS and don't be afraid to attack when you find one. If I can make it work you definitely can!Best of luck and hope it all works out for you.

Jordan Graham · Answer

I am in the same position as you, I am 31 years old and single which allows for flexibility in a living situation. It is crazy expensive here with no signs of slowing down (SD appreciates 6.94% per year on average which is higher than the majority of markets around the country).I personally like the idea of purchasing a low down payment personal residence as a first investment, that way you have more control of what happens. If you are lacking capital or the ability to qualify, you can always partner up with someone and go 50/50. I just bought a SFH in La Mesa and partnered up on a 5% down conventional loan purchase in which we are renting out the extra rooms to tenants (I am currently paying $400 for my mortgage payment). Since you are single and able to go the roommate route, I would take advantage of that. Once you buy your first house hack and let the market do it's thing, you can take out a HELOC or refinance and leverage your property to buy more properties elsewhere.

Brenna Carles · Answer

Hey Bryan, Have you thought of getting into STRs? I know you say going outside areas you do not understand is scary which I definitely understand! However, numbers don't lie. I would start researching STR income numbers for The Smoky Mountains, Blue Ridge Mountains, and Gulf Shores to start with. @Avery Carl's team specializes in STRs and can actually help you decide which areas may be profitable for your budget as well as educate you on the areas. However, it is good to visit the area you invest in so you can recommend places to eat, fun things to do, etc. It helps the guests feel more connected and therefore, better reviews. Hope this helps!

Rick Albert · Answer

One thing to factor is when you are collecting rent from OOS properties, that income goes towards the rent of your home. By house hacking, the income from the rent goes towards your mortgage, which is ultimately your net worth.Either option can work but you just need to put perspective on what the results do. In an ideal situation, you would house hack and then invest. But that isn't an option for everyone.You could also look further north in San Diego such as Lemon Grove. A while back there were large homes with low bedroom counts at affordable prices. You could easily add 1-2 bedrooms within the existing square footage, maximizing your house hack and later on potentially rent out via Section 8 where the government pays you based on the bedroom count, not necessarily based on floor plan.

Ben Capone · Answer

Given my current situation, SFH was better and more feasible for what I was looking to accomplish. I do eventually want to break into the multi-family market, but likely later down the line when I have more refined processes and systems in place.

Bryan Kurtz · Answer

@Mark Frattini Thanks for the helpful info. Yes, the appreciation here has been nuts. I wanted to buy last year in March but was looking to do a career transition, so decided to wait. That decision has been paining me ever since, but hindsight is always 20/20.

Danielle Jackson · Answer

I suggest start penciling out properties and see if they seem out of reach or actually are out of reach. I'm sure 80% of the investors in this forum would say their first home/investment purchase felt too expensive.

Cameron Braig · Answer

@Ben CaponeThanks for the post.

Twana Rasoul · Answer

@Bryan Kurtz For new investors, buying locally, where ever that may be is the best way to start. House-Hacking specifically is the easiest and most effective ways to start since you can take advantage of low down payment options and lower rates to buy your first place, occupy it for a year, rinse and repeat. You can put as little as 0%-5% down on a condo or single family home (depending on VA, FHA or conventional), live in one room and rent out the other rooms or buy a duplex with 3.5% down live in one unit and rent out second unit. Everyone is paying for a mortgage, either their own mortgage or someone else's mortgage. I wouldn't personally try to time the market even though everyone always tries to, I remember many have been saying the market is going to crash for the past 5 consecutive years, haha...I personally purchased another investment earlier this year and in escrow currently buying another investment for myself here in San Diego. If you are a long term buy/hold investor then it doesn't matter what happens in the next year or two. Once you get in the market with the first property, it definitely becomes easier.

Wesley I. · Answer

@Bryan KurtzGet pre approved for a primary so you’ll know how much you can afford and how much cash you need to close. Getting a primary will give you a good lesson on what it takes to keep up with the house, e.g. things that break and/or how long things last.Remember that money is made when you buy. When looking for your primary, look for properties with value add so you can force appreciation by fixing stuff up or adding an extra bathroom/bedroom.Wish you the best of luck.