Thoughts on buying a primary residence or keep renting and invest

[Caleb Rogers]

Should I save up a down payment for a primary residence, or use that money to invest in one or more rental properties? I know there are plenty of people on both sides, but I'm curious if someone here has done one and wished they had done the other?

I have one rental property, and I'm currently renting an apartment. My wife and I would like to buy a house, but we would also like to invest in a lot of real estate. For one 20% down payment in my area, I could probably acquire two or three good rental properties (with 20% down) in the same market as my current rental. But as we know, I can get into a primary residence for anywhere from 3.5% up.

If I buy a primary residence with a big enough down payment I can use a heloc to invest, but it take a while to get to that dollar amount. If I aim for rental properties, I'll get cash flow, but I'll keep using my cash reserves to buy houses and not be able to have a down payment for a primary residence. At least not for several years.

Renting isn't too bad, but houses in my area have always appreciated well, so that's a consideration. I know at some point, I'll have enough cash flow that I'll be able to buy a place to live, but should I wait? Who has done one and wished they did the other, and why?

Oh, and there are no duplexes in the area, so house hacking is likely out of the question. Also, I don't have the money saved now. I'm trying to figure out my strategy here, because I need a clearly defined objective to create the success I'm after.

[Jim K.]

@Caleb Rogers

Here's my two cents. Money paid on rent is money completely thrown away. You'll never see it again. Money paid on a mortgage, on the other hand, only tosses away the money you spend on the interest of the loan. The rest builds up your equity stake in the home. And over time, you own the house. With rent, you own nothing, and if the owner of the rental property wants you out, if something goes really bad in your life, you'll be looking for a new place to live, usually at the worst possible time.

The biggest mistake I've seen my friends who are not in real estate make is to invest as soon as they can in "a family home." And I've seen this over and over again. It makes their wives happy, it makes their parents happy, and it sets them up for a life spent paying down debt they didn't have to assume.

They buy the biggest and nicest house they can get a loan on in the finest neighborhood. And then they're stuck paying boatload of interest on their gigantic mortgage, and inflated real estate taxes, and all the rest of the expenses that come with living in an upscale neighborhood. It's just easier to give in to the urges to buy a Lexus and not another Toyota, to do most of your food shopping at somewhere other than Aldi, and of course, there are the children's expenses.

Creating an environment of artificial scarcity through budgeting to get you extra money becomes more and more difficult. If your wife is not completely on board...man, it's draining. You will be worn down to a little nub, and sooner or later, you'll be just another bozo in a house that costs too much driving a car that costs too much living a life where you can't pay off your credit cards (like 60% of Americans), caring about the financial judgments of your social status made by broke people, and making one excuse after another about why "I just can't get ahead...I just can't."

You say that there are no multifamilies or granny apartments in your area. So if I were you, I would find the absolutely cheapest house in the poorest neighborhood in your area that you can live in. I would buy that house and move into it. Pay it off as soon as possible while you investigate real estate investing and come to solid, reasoned decisions about your business plan going forward.

Your miserly new home won't be comfortable, it won't be nice, if won't be your castle, your wife will not appreciate nesting in it, but you will have a roof over your head, and that roof will be paid off. You'll have your rental property, making money for you. You'll have figured out your moves. That's a basis for something.