Buy personal home or investment property first?

[Kelton Dotson]

Hello PB family. 

I live in the Seattle area and want to buy investment property in Houston. With today’s interest rates I would qualify for about a 500k loan in my area to purchase a primary residence. I am trying to figure out the most profitable way to utilize my cash and credit availability to capitalize on the low rates. Should I buy my personal residence or investment property first?

I’m thinking that credit would be better utilized on an investment property instead of a personal residence right now. My current thought is to rent my personal home for the next year or two and use my credit to buy one or two income producing properties over the next couple of years. And hopefully buy a home when I have more investment income. Any feedback would be greatly appreciated. Thank you.

[William Sing]

Hey

First off, congrats for being in a place where you have so many options! 

Do you want to be the most profitable in the short term or the long term? 

1) Investing in rentals will produce cashflow more short-term. If you are wanting to supplement your income with rental income more immediately then I think this would be the way to go. Usually, when you invest in more cashflow markets you are not getting as much appreciation and rent doesn't go up as much over the long haul. You will also have to manage from afar, which isn't a bad thing, but it will probably be a bit harder to make sure you have the right team to make sure your investments don't become money pits. 

2) If you invest in a personal residence it will most likely appreciate more in the long-term especially in the Seattle market area. Just like Portland, that is much more of an appreciation market than a cash-flow market. You can then use the equity gained to then invest more in cash-flowing properties. This is going to be a longer-term play but the price of buying a home in Seattle will most likely never go down that significantly given the economic drivers. 

3) Why not do small multifamily and you use as a primary residence? There are usually lower down payment programs where you are able to leverage these low rates. The rents from the other units would count towards your DTI ratio and can usually increase how much you can be pre-approved with.

I hope this gives you a bit more to chew on. DM me if you want to chat any further!