Do you have money to pay cash for a property? Otherwise, you're still renting. You're renting the money to buy the place and paying interest. It truly is six of one, half dozen of another. There are plenty of places where renting makes MUCH more sense than buying. A house you live in is not an investment. Its an expensive doodad. Financially, you may be better off renting that doodad than buying it. Do the math, don't let your feelings that "renting is bad, owning is good" blind you to the better alternative. Further, renting gives you much more flexibility. You said you're fresh out of college. Sometimes first jobs work out, sometimes not. If you end up changing jobs and you own something where you started, you may be stuck with paying the exorbitant selling costs (assume 10% of the selling price will go to these costs) or stuck being a long distance landlord. This I applaud. Don't buy a house unless you intend to die of old age living in the house. The "starter house", "move up house", "mini-mansion", "downsize condo" idea is a plot by realtors and home builders to extract as much money as possible from you on transaction costs. I'm totally serious. You just have to watch ads by the NAR with a skeptical eye to see their agenda. IMHO, I would not really want to live next to my tenants. I have my life, they have theirs. They intersect when they pay the rent or need something fixed. Further, when I buy a rental, the goal is to turn a profit. When I buy a place to live, the choice is more complex. A bunch of my personal needs and wants and the limits of my pocketbook come into play. I'll repeat I think a residence is just an expensive doodad, so doodad criteria come into play. You can cut a sandwich just as well on a formica countertop, but I want granite. A Ford Focus will get you down the road just fine, but my Mustang is a lot more fun to drive. Its not always easy to find a multi that both meets my personal needs and desires and meets the required profit criteria for a rental. So, something has to give. If my intention was to make it a full rental, I would sacrifice my personal wants and desires and focus purely on the property as a rental. Perhaps that works for you. Some folks do start that way.

FHA loans now charge 1% origination fee up front, so you're really looking at 4.5%. I spent a lot of time looking at this for a friend a couple years ago and we determined that you're better off doing a 5% down conventional loan with PMI than an FHA loan. Payments will be slightly higher (until your LTV drops to 80%), but the 1.5% equity difference more than makes up for it.

If you can afford to purchase a 2-4 unit property, that is an excellent way to start out. It will give you a good hands on experience as a landlord and potentially provide rent-free housing for you in the meantime. -Michael

Purchasing a duplex or tri-plex is usually more expensive than a SFR which offers the same square footage as one single unit. Your property taxes and homeowner's insurance is going to be higher. The cost of the appraisal is higher than a single family residence as well. Maintenance costs can be greater but hopefully your rental income will offset this.

Michael Siekerka@michael siekerka thanks

Simon Campbell whats an example of some additional costs?

@jon holdman master piece of a response. I cannot add to it.

Jerry , welcome to biggerpockets Maybe search for threads on Homepath or Homesteps

Jon Holdman - excellent reply here! I agree completely. If you do not mind living next to your tenants, then buying a duplex or tri-plex can make sense but the initial investment overhead can be higher. Since you are just starting out, I would recommend getting an emergency fund in place first. This should include 6 months of living expenses. You do not want a job transfer to push you into foreclosure. Then move on there to creating a down payment. Yes, you can buy property with 3.5% down (FHA) but the additional costs can kill your return. The more the down payment, the better the terms.

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Updated over 11 years ago, 05/25/2013

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Jerry SkeensPoster

Bristol, TN

Starting Out

First Property?

Jerry SkeensPoster

Bristol, TN

Posted May 22, 2013 08:36

I'm fresh out of college, about to start my first job. I will be moving and do not believe in renting. I'm not the type to buy myself a "starter home" either. However im not financially set to buy my "dream" home as of now. However i would take in consideration of investing in a Duplex/Triplex and living there while renting out the other units. Is this a good idea? Or should i take another route? Please help?

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