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Updated over 11 years ago on . Most recent reply
First House or First Investment Property?
I apologize in advance if this topic is covered elsewhere... I've searched around and all I've found is a topic about purchasing a vacation home instead of an investment property. But here's my situation... I'm a 25 year old college graduate with a good job in Accounting. I'm wanting to start investing early, but I've been told that I should buy my own first house and settle in before starting to purchase investment properties. This advice was given by a successful real estate/business investor that lives in the same city as I do, to his own son as well as to me. It should be noted that I live in an Indiana city of 100k people, so this isn't a "I live in LA and couldn't afford a house even if I wanted to" situation. Is this advice that I should take to heart, or is owning investment property while renting acceptable? Also, feel free to ask any questions about myself, my strategy, or my finances that would help respond to the topic. Thanks everyone!
Most Popular Reply
Ken Barrett,
Welcome to the best Real Estate forum on the net.!!!
Do you want to be a landlord?
Have you thought about purchasing a 2, 3, or 4 unit property, and occupy one of the units?
An Owner Occupied property, will qualify for a low interest rate.
Raymond
Ken Barrett
I did not see it mentioned as I skimmed through the thread but you have to look at your personal financial situation. Do you have debt? Do you have money for a down payment? What is your income? Any plans to marry that handsome looking lady in the picture? ;-) If you have debt, how much and how do you plan on paying it off?
Questions like these have to form part of your investment plan before you choose an investment strategy (single family home, quad, etc.). To me it does not make a whole lot of sense to start investing in real estate if you financial house is not in order or if you owe $10k in credit cards and don't have the money to pay it off. That might just be me.
The primary residence exemption still applies!
http://www.irs.gov/faqs/faq/0,,id=199598,00.html
250K for single 500K for married
Joe Delia that is what I'm using! The properties aren't nearly as readily available though for that kind of cash flow, but I know they're out there! Ann Bellamy Kama Ward I haven't really considered the rehab and sell strategy too much... I've focused more on buy and rent . I have however heard that the profits from flipping a rehabbed home can be more than enough to make up a profit for a down-payment on a future investment... so I may start to look into it a bit more. Luis A. I completely agree with you about making sure I actually have the money to invest first... but I think my financials are pretty strong at this point in my life. I have zero credit card debt, 5k in student loans, 2k on a motorcycle loan, and 20k on a car loan (purchased prior to me really getting into the idea of investing, so don't hold it against me). I am single and I've created two budget schedules that I could follow. One would allow me to have all of my debt paid off in 2 years (per Dave Ramsey's advice), the other would allow me to purchase my first investment property within a year or so (preferably a multi-family that I could move into and rent out the other units).
Originally posted by Ken Barrett Luis A. I completely agree with you about making sure I actually have the money to invest first... but I think my financials are pretty strong at this point in my life. I have zero credit card debt, 5k in student loans, 2k on a motorcycle loan, and 20k on a car loan (purchased prior to me really getting into the idea of investing, so don't hold it against me). I am single and I've created two budget schedules that I could follow. One would allow me to have all of my debt paid off in 2 years (per Dave Ramsey's advice), the other would allow me to purchase my first investment property within a year or so (preferably a multi-family that I could move into and rent out the other units).[/quote:
Since you mentioned Dave Ramsey let's go there...
Why drag the $7k in loan/motorcyle for 2 years? You should kill those ASAP and THEN go into saving for the purchase of the property. If you really wanted to go Ramsey he would probably suggest taking care of the car loan next but I see your point about seizing an opportunity to buy the quad....
If you focus all your energy on the $7k right now then you can focus afterward on saving for the property.
In a word..... PATIENCE.
As you can see from this discussion, there are many different directions you could take your investing career. Unless you're ABSOLUTELY certain about which type of investing you want to do, I would strongly encourage you to spend lots of time getting your investing "Degree". Read as much as you have time for! Read through this forum and pick up some books on the fundamentals of real estate investing so you can get a good look at all the different styles and methods of investing. It's easy to hear about one strategy and say, "I can do that", and go full-force into it but later find that there's an even better strategy that you like better.
You're at the starting gate now so this is the very best time to determine your direction. Building your career will be just like building a house. Start with a good, solid, proven set of blueprints (knowledge). Critique your blueprints and MAKE ADJUSTMENTS TO YOUR PLAN HERE, before you begin constructing your career. Making changes to your BLUEPRINT is always easier than making changes to the actual structure! Be methodical and follow the plan you chose.
On a personal note, I started out in investing by buying my first house as a primary residence. Eighteen months later I sold it for a $25k profit and was instantly hooked on rehabbing. Now that I've streamlined the rehabbing process, I can turn one in a matter of a few months and get returns between $10k and $50k per deal. I'm not at all against buy-and-hold but I haven't been able to convince myself that it would work better for me than rehabbing. My personal comfort level is in getting payments in big chunks instead of small, long-term payments. That's just me.
In the end, you should pick what feels right for you. Just make sure you've done enough research to be able to see the big-picture of real estate investing so you will know what your choices are.
Good Luck!
I have 60K in student loan debt, a credit card that sometimes is paid off and sometimes up to 5K and recently bought a car for 14K.
I'm still planning on buying house number 3 for a total of 1 primary and 2 rentals by the end of the year. The rental I currently own is paid off becuase we used money to buy that instead of paying debt down. No fear of loosing that one if I get late on any payments.The second will have a mortgage balance of 54K and have positive cash flow of about 200/month using 50% rule and self management. The paid rental is about 300/month using the same metric. My student loan payment is about 600/month when I start paying it (have been deferring it for 4 years). I think it would take about 4-5 years to pay off the SL's if that is all I applied my funds toward. Now, with only 100/month difference to make up for, its almost like I did pay them off, except I have two assets as well. And if I wanted to use my rental proceeds along with my income, I can pay the SL's off even quicker.
It would take at least 6 months to pay off the car we just bought, but the deal is, I stopped driving my truck (which I kept and is paid off) and we put a little money into my wife's old car (which is also paid off) and it is still going. In all, we have about 100/month more net vehicle expense than having no car loan considering the car payment, extra maintenance, increase insurance and registration and gas savings (toyota matrix uses a lot less gas then the chevy silverado). I can easily handle 100/month and when I am saving 10's of thousands over the course of a year or so, that 100 bucks a month is really not hurting me too much. I suppose I would have been better off to not buy the small car, but the truck will last longer now and I enjoy having a small car around town.
Now, what debt I decide to pay and what debt I decide to leave is also a function of my income, the interest rates and the magnitude of the monthly payment. Now that I will have a couple rentals, I will start concentrating on paying back the smaller student loans and snowballing into the larger ones. But I do not regret not having paid them back yet. While snowballing my SL's I will still save cash as well - just to keep myself pyschologically encouraged and be preparted for a possible deal that might pop its head up. If I had very little to save after making monthly payments to debt obligations, I would pay the easiest debts off first and then tackle the ones most painful to my budget.
Personally, if he is making at least 40K per year, I don't think Ken Barrett's debt situation is that bad and I would not hesitate to invest in an investment property in his current situation so long as it either a) put more money in his pocket, or b) did not cost him more than the rent he is already paying anyways.
Luis A. the two year time table that I was talking about actually included the 20k on the vehicle loan as well, not just the student loans and the bike! Michael Woodward I'm definitely still open to different investment strategies. I've just found that I find myself leaning towards buy and hold after the reading that I've done... That's not to say though that I won't ever use rehabbing as a source of income. Brian Hoyt it's awesome to see that you think I can handle the investments with my current financial situation. It's very inspiring for me!
Hi All
I wanted to ask this exact question. I'm glad I checked around before asking. This is some great advice. I'm in the process (next 12 months) of doing one or the other and after reading this the "other" will be investing first. This BP community is very helpful. I'm glad I joined.