Aspiring buy and hold investor

[Jonathan Perez]

Ok so I've finally picked a strategy that I'm 110% sure about. That strategy is in the buy and hold field and it's particularly in multi family homes. I have a question on starting this off though. 

I'm currently working a full time job at the post office putting away $500 a month. At this moment I have $3,000 in my savings for my first investment. I currently stay with my mom and we go half on a home that we're renting. Our lease is up in November. We are going to split our ways then. I was planning to have about $5,000 by November and was going to use that as a downpayment on a duplex using an FHA 203k loan. My question is:

Would it be wiser to keep renting while I save up a good $20,000? Or go ahead and use it as a downpayment on a home like I said using the FHA 203k loan on a duplex and get started in my investing?

(Or even a single family home, just for the sake of getting started and owning a property.)

I feel like if I keep renting I'm just throwing money away. So I might as well go ahead and use that downpayment in November on a home and then start up another savings then. I would appreciate some feedback on thoughts on this. Thanks in advance.

[Samuel DeMass]

@Jonathan Perez,

I'm a buy and hold investor too.  I started with 0 dollars.  The lending environment was different, but most of the mechanics are the same.  

You can find a good deal out there, but you have to know how to know it's a good deal.  I don't feel it's possible to work out every last detail and know what the future holds, but you should have a firm grip on the basic math before you jump into investing.

The real bottom line for me when I started was positive cashflow (although I couldn't articulate it then).  

I think you should jump in and buy a place come November, but make sure it's something that will produce positive cashflow for you, so you can let it run autonomously once you're ready to move on to your next residence. 

The forums and blogs are filled with great resources on how to run the numbers, to include a few easy to use calculators that @Brandon Turner likes to mention, if you don't have your own analysis tool.

I personally like having my built-from-scratch excel analysis tool because It helped me understand how the numbers work together and interact to give me the simplified big picture of properties.  

Here are some questions that you could answer yourself to help you decide wether to keep renting or jump in:

-What is the opportunity cost?  How much capital buildup (cashflow plus principal paydown) will you sacrifice by renting vs. owning? - I think it helps you if you use excel, or a notepad if you like math by hand, to project out your rent payout or capital income.  A basic option A/B analysis will get you ballpark figures you can use to help decide your course of action.

-How can you afford it?  Could you borrow some money from family (with a structured repayment plan?)  Have you talked to enough lenders to see what your options are if you find a deal with equity built in?  I've seen some (and currently acquiring) property where the lender allowed some of the extra appraised equity relieve the down payment requirements.

-What cash on cash return do you want for your down payment?  Once you decide you want to jump in, you have to have a benchmark for your returns, or at least know which property will do the best for you.

Good luck!

-Sam