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Updated over 8 years ago on . Most recent reply
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Buy and Rent vs. Rent and Buy
Hello BP,
I am looking to get my feet wet in real estate investing after I just recently graduated college and started working a 9-5 in Little Rock, AR. I want to get started, I'm just at a fork in the road on how to do it. I think that I have a few options and hope to hear advice and/or stories as to how people may have started in the past. I don't know how long I plan to stay in this area so I am wondering whether or not to factor that into my decision.
Option 1: Buy a house or multi-family to live in and rent it out if I leave the area in the near future. I know that because I would be living in it I would spend more to find houses in the area I wanted to live in and I have not found many SFR in those areas that offer much cash flow by my calculations.
Option 2: Buy an investment property and rent for my primary residence for the time being. I think this might allow me to pursue a better deal since I would not be as worried about the location. This option intrigues because I have heard a few people on the podcasts say that they have rented to buy I just feel like the other one is probably the safer bet.
I look forward to hearing your opinions!
Most Popular Reply
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@Colin Simpson . I kind of faced this dilemma myself a few years ago. While I was interested in real estate, I wasn't "positive" I wanted to do it just yet. I had just graduated, was living with my parents, and driving over an hour to work each day so I decided I would move closer to my job.
I was going to rent but when I saw how much rent was in the area (600-800 for a 1 bed apartment, 800-1000 for a 3/2 not-so-nice house) and how cheap houses were to purchase (30-70k for a not-so-nice to moderately nice 3/2 house) I decided to just buy. Also, waiting lists for apartments were like 6 months despite them being over-priced compared to what a mortgage would be.
Here is where I had an opportunity, and you may as well. Because I was a first-time buyer, I was eligible for the FHA 203k rehab loan (which to my knowledge, there is really nothing exactly like it available to investors). I was able to find a 4 bedroom, 2 bath, 1700 sq. ft. house that is gorgeous and has a 2 car garage and is about 1 mile from the local college. The house was a HUD house and was vacant. All of the copper had been stripped and a couple walls torn up. Long story short, because the 203k loan rolls rehab costs into the mortgage, I was able to get out the door with a 52k loan (about 25k purchase and 25k rehab) and the house appraised for 76k when all said and done.
I immediately moved into the house and just put the word out through friends that I was looking for roommates. I ended up getting 3 roommates and collecting $900/month in rent while only paying $575/month mortgage plus utilities. So I basically lived for free. And since with FHA, you only have to put down 3.5%, after closing costs and down payment, my initial investment was around $5k I think. I lived there for 2 years and now I've moved and I still have a $575/month mortgage but I have 5 people in there (one of the non-bedrooms I put a stand-alone closet in and call it a 5th bedroom) paying $1150 per month. It doesn't quite meet the 50% rule but I'm paying it off in 15 years instead of 30 and I could always re-fi or get a HELOC to get some of my cash out if a major expense like a roof or something popped up.
Sorry for the long post and all the round/estimated numbers but I was so young and didn't have a clue what I was doing so I don't have them saved anywhere readily accessible. I did nothing right from an investing business perspective on this one but I bought it for such a good price that it still works despite me not knowing what I was doing 5 years ago. Depending on the market where you are, and whether you can find a great deal on a HUD/203k, that may be an option that is available to you (like it was me) that isn't available to most investors.