Investing in my first rental vs buying my first home - thoughts?

Question

Hey BP,

I am new to this community, a little bit about me.

Live in Denver, CO and work in Boulder, CO. I work in energy consulting in Boulder, and am looking to get my feet wet with a turnkey provider. Denver and Boulder are difficult buyer's markets, and are not affordable at this point in my life. I want to get into RE investing for buy & hold purposes.

Do you think it might be worth it to buy an investment property before buying my own home? My thoughts are that I can look elsewhere in CO as well as OOS, and start putting my money to good use. Currently have $46K in savings that I can put to good use in investment properties. My rent is reasonable, I commute for free, WFH 1-2 days/week, and live fairly frugally outside of my rent payment.

Love your thoughts - as well as any feedback.

Thanks,

Jim Rohman

Morgan Porter · Answer

Hey Jim, have you considered "house hacking"? My first property was a 4 bedroom SFH that was probably a bit more than I really could afford. But I was single so I bought it and rented out 2 of the rooms to friends, and used the 4th bedroom as my home office since I worked from home. I did that for about 5 years before getting married and having my first kid, and then my wife and I bought another house and kept the original as a straight rental.

There are huge benefits to doing things this way. #1 reason is you get owner-occupant rates and you have to put WAY less money down! You also get fixed rates.

Travis Hatch · Answer

@Chris Lopez - thank you I'll check the links you sent me, I was hoping I was doing something wrong!

Chris Lopez · Answer

@J Rohman

There are a lot more details to figure before giving you a bulletproof answer. Generally speaking, you'll be better off buying your place first. However do it as a Nomad House hack.

Nomad - This is where you sequentially buy properties as an owner occupant with the favorable owner occupant financing. Live there for a year, then move out and convert it to a rental. You can do that with or without roommates.

House Hacking - Getting roommates or tenants in your Nomad property to reduce your living expenses (or even live for free) to help you save for your next down payment.

I have yet to see any out of state investment that beat this model. I'll bet a $100 and a pitcher a beer with anyone that they can't. The model is that good. That's not even factoring the lower time, skill, etc needed to make it happen!

For example, we have a Nomad house hack property under contract now in Denver. It's on the higher purchase price side near $500k. But, the numbers work! It has an income suite and the buyer will not only live for free, but be cash flowing while living there. It'll cash flow once he moves out. The way the deal is structured too, the closings costs, PMI prepayment and interest rate buy down is all paid for by the seller.

All in, it'll be about $25k cash at closing. That's it!I'll send you some podcasts with more examples. Check your PM.

@Travis Hatch you're analyzing them wrong! Go to this thread and scroll towards the bottom and look for the ROI Quadrant graphics: https://www.biggerpockets.com/forums/311/topics/731753-this-economy-feels-like-2007-am-i-wrong?page=2

It's the class we're teaching on Aug 6.

Travis Hatch · Answer

Hey J - we are in the exact same position!  I am new to this community and I just moved to Denver.  I'm currently living rent free, but have several options for very cheap rent in Denver.  I have money saved already for investing.  My initial plan was to "house hack" here in Denver with as little money down as possible, and use the rest to invest OOS.  The trouble i'm having is almost all of the properties i've seen, it would be "cheaper" to rent, and wouldn't touch my capital at all saving the rest for investment properties OOS.  I'm wondering if i'm missing something, or maybe looking at the wrong type of properties or wrong areas.  If you ever want to discuss i'd be happy to connect!

Jim Blackburn · Answer

@J Rohman

Read my response on this thread. I think it will provide value to your question.

https://www.biggerpockets.com/forums/311/topics/491821-help-with-purchasing-first-multi-family-home

Jeremy Oaster · Answer

@J Rohman the house-hack that Morgan mentioned is a great idea.  If that doesn’t work for whatever reason, there are some benefits to owning a rental before buying.

When we first moved to Denver in 2008, we had two rentals but were renting in the city.  We got the tax breaks from being business owners and writing off the mortgage interest, and if anything went wrong in the place we were renting, it was our landlord’s problem.  It was a sweet deal until we found a place to buy as our primary residence.

As always, consult with your tax person!

Investing in my first rental vs buying my first home - thoughts?

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