Buying primary residence before rental property?

Question

Terrell Garren · Answer

@Joe Splitrock provided simple, good advice.  Certainly, if you move frequently or live in a hyper cost area, the guidance may not hold.  But after 60 years life experience, my take is live in a moderate house that is lower than the cost of renting and provides you the satisfaction of ownership.  Invest the rest and use smart leverage.  Stupid me bought a $350K house at 35 and a vacation home at 45.  Sure my family enjoyed both but the smart play play would have been buy a $150K house and invest.  No way I would have wanted to rent for 30+ years.

Ali Boone · Answer

I'm always a fan of renting where I live and buying investment properties, especially when where you live is somewhere in SoCal (I'm in Venice). Here's my reasonings-

https://www.biggerpockets.com/renewsblog/2014/01/1...

Hope that helps! It took me a long time to believe the rumor that owning a primary residence wasn't the investment people make it out to be, but now I'm a pretty strong believer.

Joe Splitrock · Answer

@David Carte people confuse the fact that most people hold all their wealth in their home to mean that your personal home is your best investment. It is not an investment because it doesn't pay you money.

The best strategy would be to live in a cardboard box and put all your money towards rental properties. That isn't practical for most, because having a nice home relates directly to quality of life.

David Carte · Answer

@Greg Scott @Dave Van Horn @Thomas S. @Joe Splitrock @Com M. @Ali Boone Thanks everyone for the suggestions and for the materials for further investigation. I've kind if always thought that you can't go wrong with buying a primary residence and that's what I was always planning to do once the conditions were right. However I'm now trying to understand the real benefits/drawbacks of both situations and it's definitely a tough situation to navigate since it's a new way of thinking for me.

Dave Van Horn · Answer

Tying back into the original post from @David Carte. Just stumbled upon this forum thread. Pretty inspiring stuff.

https://www.biggerpockets.com/forums/223/topics/47...

Dave Van Horn · Answer

I think it's important to stress that no one strategy fits everyone.

In my post above, I certainly wasn't suggesting to buy this first property you'll live in and live in it forever. But I think it could serve as a valuable stepping stone, especially if you get creative with it in terms of things like house hacking or Airbnb.

And I actually agree long term about the primary residence not being a person's most valuable asset. This idea is a bill of goods that we've been sold. Depending on the area you choose to live (think NYC, SF, etc) and especially with higher end property, many times you can get more bang for your buck with renting. So as long as you have real estate for the advantages it offers (i.e. deprecation, write offs, etc), then renting can definitely make sense.

Com M. · Answer

That answer totally depends on your situation. In my situation it was not a good thing as my Primary Residence mortgage takes half of my after tax income making my debt to income a little harder to deal with when it comes to investing. Not to mention the serious strain it puts on your savings rate.

Thomas S. · Answer

Buying a primary residence is a life style choice it is not a investment it is a liability.  In the majority of markets a personal home in the long term will cost you more than it will ever be worth.

Home ownership will slow down your personal financial growth making the lower cost of renting far more attractive to investors.

Dave Van Horn · Answer

@David Carte

This is a great question. If you have the opportunity to do it, and it works in the market where you'd like to live, then I say go for it!

I'm a huge fan of what I call "buying purposefully" or "buying intentionally" mainly because you need a place to live, instead of essentially "throwing away" your rent money you can put it towards a mortgage, plus you can take advantage of some of the best financing out there while you do it. Not only that, you can use that financing towards getting more units faster with a multi-unit property. Besides, you only have about 10 doorways to your personal name anyway, why not use them for investments?

I could go on but there's almost too much to say in a forum post about it. I actually wrote an article for BP (with examples) about the topic if you're interested:

https://www.biggerpockets.com/renewsblog/2015/10/0...

Best,

Dave

Greg Scott · Answer

David:

Part of the answer depends on your goals and situation.  As you climb higher in your profession, will you need to move a lot?  If so, it may be better to buy a single family rental and rent where you live.

I think the days of "my home is my investment" may be over.  More people are starting to realize that, while it can go up in value, your primary residence does not provide you a stable retirement income.   I would treat it as a cost of living.

Buying primary residence before rental property?

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