Should I invest in a lease-own apartment? Is this a good idea?

Question

Hello all,

Kinda lost and I’m not really sure on how to gain footing in my real estate journey. I would like to move out but I’m currently living with my parents where I’m paying 350 a month. Should I invest in a lease-own apartment where I would rent out the entire apartment? Or should I start out with a home and use an FHA loan? I feel like a lease-own apartment would less riskier and more doable since it wouldn’t be a large investment. I would save money from the lease to own investment and would eventually investing in a home soon after that in the Connecticut area or even jersey. Any advice!

Justin Darian · Answer

Thank you so much for the helpful information! I’m 23 years old and I’m a college graduate with no student loan debt. I have a good credit score of 700+ and I’m living in Queens, NY. I want to move out with my girlfriend but people usually tell me to stay where I am to save money and invest while still living with my parents. This isn’t a bad idea but I think I want to live on my own due to lack of privacy. Im working at a Marriott hotel where I’m making $2,300 a month. I don’t have major bills which is great. I’m honestly just saving money but I don’t know which route to take. My mind was set on purchasing a home with an FHA loan where I would get the 3.5% downpayment but I ran into an old friend of mine who just recently invested in a apartment in Far Rockaway NY (not too far from the beach). I looked at this and asked myself if this would be a decent investment before taking on an actual home because of the amount of responsibility that is involved. For the meantime, I will just lay back and save save and save and continue to research. I’m currently searching for a remote job where I can move into a property in either Connecticut or even jersey without having to commute. That is my biggest concern… if I move out into a home and rent out the rest of the units, I won’t be able to quit my primary job as of yet. Which means that I would have to either sacrifice to make that commute or just look for a remote position. That’s where I’m currently at. But thank you so much for your response. I hope to hear more from you Steven!

Mohammed Rahman · Answer

Hey @Justin Darian - I'm copying my response to your other post in the forums since it seems like you're taking stabs in the dark to find some traction before taking your first step. Not ineffective, but not super efficient.

There are a lot of different ways to get your foot in the door with real estate investing, so the more varying your background the better of a time you'll have :) I recommend starting with reading the books recommended in the BP forums, they're a good way to learn about both the great and ugly situations you could find yourself in. If you want to chat, I'm happy to hop on a call (I'm also in my 20's and have been an investor for a few years. I'm based in NYC too) - shoot me a DM and we'll take it from there.

Es Stones · Answer

Hey Justin,

Welcome to the journey!  I'm also trying to figure out how to start my journey as well.  I am assuming that you are on the younger side (not like me) which opens the door to house hacking to paydown the debt service and get things rolling.  I sure wish I had that figured out 35 years ago!

As a newbie myself, I really hope that some pro's will correct me if I am wrong or point out things I will probably miss.  That said..

I think it comes down to the math ultimately.  Not knowing your income and credit rating makes a lot of this conjecture.  Many folks do Lease-Owns because they have spotty credit, have good income, and need a place to stay.   From what I understand you might not be able to collect as much tax advantage from a lease-own.  If the deed is not in your name, and you don't own the mortgage then you don't get to write off the interest from the loan each year.  This really helps to offset the income at tax time and adds to the properties' profitability. The plus side is that sometimes cost of entry is less (depends on the terms of the lease-own, they might want money down to commit you that will not be refundable), so you don't have to deal with a bank directly for the period of the lease, which could give a person time to repair their credit score etc.  Worse case scenario you walk away at the end of the term (or before) if the SHTF and only lose your "deposit" and any capital improvements.  One word of caution though is that some lease-owns require you to maintain the property and do all the repairs.  So if you go that route be sure you know what you are doing and have reserves set aside to cover them.  On the plus side, you  might not be dealing with a broker, which could result in a better price on the front end.

Owning and house hacking is great, all you need is to drop 3% down (FHA) and live there for a year and have to be ready to shoulder the mortgage in the event your roomies flake on you, as well as deal with all the repairs and maintenance.   So there is more risk, but you get better write-offs.

Hope this helps and let me know where in CT you are looking

Steve

Should I invest in a lease-own apartment? Is this a good idea?

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