Primary residence as your first rental property

[Tim Sipowicz]

I've been told twice now that using my primary residence as my first rental property would be a good move. I've thought about it and I'm starting to agree, I would just like some feedback on the approach I want to take. We were initially looking to sell our home and use the profits from the sale as a down payment on our next house. But now instead, hold onto the property as rental, buy a new primary residence with an FHA loan and get a little more sq footage for our growing family. My question is though, is it a backwards move to open a new mortgage that's just going to increase our monthly expenses with a higher payment? Also, how do I approach this situation correctly to keep building and acquiring properties after we get settled into our new home. If I need to clear anything up, please let me know because this may be a winded post. Thanks in advance!

[Corey Hawkinson]

@Tim Sipowicz It is a good strategy and one that I used. It is a great way to slowly build up a portfolio since you only need to put down a small percentage and you can get strong financing with 30 year amortization. Here is my personal example, and I hope you do much better than I have done:

In December 2007 I bought a condo as my primary residence for $105k. Bad time to buy and I also made a dumb decision on what I bought, but as you’ll see I did overcome that.

In May 2015 I bought a single family home for $140k and moved. At this time I kept the condo and turned that into a rental property. Despite being very underwater on the mortgage I was able to break even on the cash flow mainly because of the low interest rate and amortization.

In November 2017 I bought a different single family home. I kept the prior single family home.

In November 2019 I sold the first single family home and used the proceeds, along with cash, to purchase a 4-unit property.

As you can see, this strategy has worked out well for me. However, it is a slow strategy. That’s fine by me. Through just this strategy, I now own the home I live in which includes a mother-in-law suite that we rent out, a condo that is slightly above break even now, and a 4-unit property with strong cash flow.

(In July 2012 I also bought a condo as an investment but let’s ignore that as it isn’t part of the primary home timeline.)