Should I buy an investment property or personal residence first?

Question

I'm based in Miami, FL and currently rent, though I've been saving up to purchase a home. Home prices are high here so I'm really leaning towards investing out of state or in a different part of Florida to create cash flow vs. buying a personal residence and starting my savings over from scratch to invest.

Don't get me wrong, I really want to buy a place of my own that I can live in but the math is making a bit more sense to me if I invest first. At least that way I can use some of the cash flow to save for a personal residence.

Any advice/perspectives on how I should approach this?

Scott Trench · Answer

I’d house hack or live in flip if you go the primary route. The end game is a nice primary paid for by investments.

Using a “primary” to cheat code wealth creation through the live in flip or house hack approach is a great way to get started, but if you just buy a primary and finance the limit of what you get approved for, you will find that primary an anchor dramatically slowing your roll towards financial freedom.

Alecia Loveless · Answer

@Angie Guifarro I bought investment properties first and now house hack a duplex I picked up along the way.

If my spouse was not so averse to the idea I would move once a year to new multi family properties taking advantage of low down payments.

As it is we both have a strong desire to buy a SFH for ourselves but currently house hacking is a better solution because that other rent is paying our taxes and water and sewer bills and for some mid range priced renovations to the property. We also cash out about $1800 apiece from the property each year. We have had a tenant at a below market rent since we bought the place 4 years ago and he is moving. I anticipate at least another $5000 in cash flow with a new tenant which is will allow for things like electricity and internet to be paid for too as well as more cash flow.

If you choose to buy a residence first I would try to hold out for at least a duplex. I have investigated several out of state markets and have not found anything that I like better than what I am investing in now when comparing overall income, expenses, and the potential for appreciation. If you decide to invest out of state do a LOT of research to substantiate your decision compared to what you can find either locally or within a few hours drive of where you are.

Michael Smythe · Answer

Both!

Buy a 204 unit and live in one unit while BRRRing the other(s).

Jeff Roth · Answer

Hi Angie-

This is a great question that I think many first time homebuyers are facing.

Should you save up to buy a primary residence in an expensive market like Miami, where you currently live and rent, or buy an investment property in a cash flowing, more affordable area?

First off, there are simply some markets, like Miami, where it is cheaper to rent than own. So, mathematically, you should continue to rent.

However, for your longterm financial wellbeing, owning is better than renting and you build up equity and benefit from rent increases from owning investment property plus all the tax benefits you don't get from renting.

I would look at buying a duplex in a market like Lansing, MI. You can cashflow all day there with a property manager and you should always have a rent check coming in with a duplex with predictable linear appreciation.

Pull cash out from the duplex and buy another one or buy in Miami if prices soften there to the point where it makes more sense to buy than rent.

To your success!

Wale Lawal · Answer

@Angie Guifarro

Thinking about your financial goals can lead to the decision to invest in rentals first or a home to live in. Rentals can bring cash and help you save faster for your home. Look in areas with affordable homes and good rent demand. Check each home well for how much it can make, costs, and if you need help to run it. Think about your long-term financial plans. Do rentals fit in? You can also buy a home and still buy rentals. House hacking is one way to do both. Consider your budget, savings plan, credit profile, and financing options. Consult with professionals to develop a personalized investment strategy.Good luck!

Louisa Davis · Answer

Hi Angie, great question and one to which there's no single answer! As a general rule, it's important for anyone to own their residence. It's a #1 indicator of long-term financial stability and net worth. Taxes and insurance do go up over time, but the bulk of your monthly payment will stay the same even with high inflation. If you're renting, then you're subject to that monthly turbulence, and your cash flow from rentals might not keep up to cover that difference.

That being said, I do know some people who invested in real estate before buying their own primary residence and they are successful! I think they are the exception, though, rather than the rule.

Theresa Harris · Answer

In some places it maybe cheaper to rent than to buy (eg most of California).  If you are in one of those places, then invest out of state.  Start by identifying a location (eg where you grew up, where you have spent time).  Then find a good property manager and realtor to work with.

As others mentioned, you could also buy a place for yourself and rent out a suite or rooms (if you are open to having roommates).

Josh Green · Answer

You should House-Hack!  Get the benefits of the primary loan, low downpayment, beginner experience as a landlord, etc.  If you buy a primary first, the second one will require not only a good 15-20% down, but your DTI will potentially limit you on what you can qualify for on the next.  If you buy an investment first, it's got to be a screaming deal or you'll see lower returns than the combined savings+income of doing a house-hack (you got to live somewhere!). :)

Samuel Diouf · Answer

House-hacking is one of the best ways to get your foot in the door of investing. You’re able to learn the basics of a real estate investment with lower risk and build equity at the same time.

Branden Rivero · Answer

Fellow Miami resident here, I would house hack in the area you want to be in. You'll be surprised how easy the next purchase will be after buying the first. Also , as far as starting over in your savings, Your savings are being invested they are not gone. It is sitting in equity.

Should I buy an investment property or personal residence first?

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