Does Living in a Apartment hinder new investors?

Question

I'm just as eager and ready to invest as the next guy, I'm a newbie who's done all of the readings, listenings, meetings, etc. etc. and now it's time to act.

My biggest concern right now is my living situation. I live in a apartment and I want to know the opinions of the community here on if I'm thinking crazy. I have a fear/concern that I can't seriously consider investing while in an apt, because if something comes up that's a great deal let's say, tomorrow, I would still have 8 -9 -10 months left of my lease at the apartment and would not be able to buy it without a large (for me) 20-25% DP.

If there is not a viable investment property to move into around the time my lease is up, should I just move anyway into a house? Solely to be rid of the apartment renting cycle? If not, I would risk either having to renew my lease or find another apartment and start back over in the cycle, no?

Am I missing something? I struggle with seeing how to realistically start while in my apartment. Please help!

Nicole Heasley Beitenman · Answer

I'm a little confused--are you looking to house hack or buy a straight investment property? If you're looking to house hack, then the property is your primary residence and you don't need a huge down payment. You can do an FHA loan and put less than 5% down. If you're looking to own an investment property while you continue living in an apartment, your lease is irrelevant other than increasing your expenses in the eyes of lenders.

Account Closed · Answer

I'm in a similar situation. I have a 12-month lease and if I find a house to buy in the middle of the year, I signed up to "buy back" my lease for 2 months of rent (the other choice I had was to continue paying the rent through the full term of the lease or until the landlord found another tenant to replace me on a new 12-month lease).This type of uncertain living situation comes up all the time with people. Some people need to live someplace for a few months while their house is being built or remodeled or while they are on temporary assignment in an area because of a job. "Extended stay" hotels came into existence to serve this market need.When I first arrived to Pensacola, I stayed at a 2-star motel for $X a night and reserved the room one or two nights at a time (my apartment move-in date kept getting rescheduled as its upgrade schedule kept slipping). If I had reserved my motel room for a week or more at a time, I would have had to pay only $X/2 per night. Interestingly, when I moved into my apartment and divided my monthly rent by 30, I came up with $X/2.

Ian Walsh · Answer

This is a made up boundary you have placed in your own mind.

Prag Patel · Answer

Not necessarily true. You should be able to get an FHA loan if the property is between 1-4 units. And there's no formal way of claiming primary residence, so you can be "living" in the house that needs rehab but still live in the apartment. As long as all the bills are paid there should be no issues.

Prag Patel · Answer

I would say you're in a great position because you're leasing your primary residence. Not only is your rent excluded from any/all DTI factors when looking for financing, but you can buy a really ugly house or multifamily and rehab while you're living comfortably in your apt. You can go month to month, or break a lease a lease which is considerably cheaper than selling a house. I'm in a similar situation, mostly cause I keep changing my day job so much. But I love having all these options.

Omar Khan · Answer

@Evan Parker You raise a valid point but before looking for deals, I would urge you to start educating yourself by learning about your preferred market, connecting with investors/brokers/lenders and doing your due diligence.This will take up time but also provide clarity. You should read your lease to understand when and how you can "break" your lease and the penalties associated with doing that. You can also time your next purchase to coincide with the end of your lease. Either way, I think you're putting the car before the horse... Just learn, start small and you'll figure a way out :)

Brian Medansky · Answer

I would say the first thing to look at is if you would be able to sublease your apartment. If you can, then that basically solves that issue. If not, I would talk to your landlord and just vaguely ask about what the procedure would be if you needed to break the lease.The part that might hurt you is your lender looking at that fixed expense, but that will be specific to the lender.

Paul B. · Answer

I agree. It seems silly to say that there are only 1-2 months a year that buying a good deal will work for you, because that is when your lease is almost up. If you can't afford to break a lease (say by paying an extra month or two or whatever your landlord requires), then maybe you don't have the cash reserves to buy an investment property. Whether you rehab and flip, or plan to hold it for a long term rental, you need to have a cushion for when things go wrong.And like someone else asked, are you planning to house-hack? If you don't intend to live there, why would you be breaking your lease in the first place? You still need to live in the apartment.

Prag Patel · Answer

Hey Daniel, welcome to Atlanta! I was/am in your situation, I just moved here last August. I am actually closing on a house (to live in) this Friday. I would definitely recommend renting out a house or apartment first, because it's next to impossible to pick the right spot for you immediately. We were definitely surprised at what areas we preferred to live in compared to what google told us we would like. If you need any other pointers feel free to reach me.

Taylar Caraway · Answer

We are kind of in the same situation. We will be relocating to the Atlanta area in September and we want to begin real estate investing. It's tricky trying to figure out the best course of action! We aren't sure if we should start off by renting somewhere month-to-month when we arrive, buy a single family home, or buy a duplex to owner-occupy... there are so many options! But our struggle is finding the right deal at the right time. We don't want to settle for something just because "we needed a deal"...I think in your case, like @Prag Patel said, you're in a great position because you already have your apartment and can live comfortably there while you wait for the right deal to come along, then if you choose to rehab it, you still have a place to live. I'd definitely look into how much it would cost to break your lease that way you are prepared to do so if/when you had a reason to. But otherwise, just keep searching and you'll find the right deal for you!