Buy myself a primary residence? Or Investment house first?

Question

Hey guys,

I live in a hot market (Houston to be exact). I'm torn between moving out of my apartment and buying a SFH or investing in a rental SFH or other property in a different market (such as the Midwest). There are two main issues in my situation. 1) I may not live in Houston in a couple of years because I may move overseas for a career change 2) It doesn't make sense to keep paying an apartment and not build equity on my own primary residence. But in regards to #2, I hear that unless I plan to live in my primary residence for 5 years or more it doesn't make sense with all the costs associated with buying a house and selling it later down the road if I do move overseas. The point is, I'm not 100% certain on where I'm going to be living but I am 100% certain that I want to put my money where it makes sense from an investment standpoint. Thanks so much, I have less than a years experience in studying real estate but I'm researching daily and plan to make my first investment sometime in 2016.

Logan Allec · Answer

Why not do both?  Buy a 3- or 4-unit property and live in one of the units rather than throwing money away on rent every month.

Logan Allec · Answer

Rick, 3.5% down on a $500,000 fourplex is only $17,500.  I recently did the 4-unit house hack in a hot market too (Los Angeles).  Would I have done it if I already had a primary residence and I had to put 25% down?  No way.  But since I was kicking money out the door every month for rent and because I could get in the property for a measly $15k down + $10k repairs, it was as no-brainer.

There’s something else you need to consider when looking for an FHA owner-occupied triplex or fourplex, which is that 85% of the market rents on all four units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance).  This is known as the self-sufficiency rule.  I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies.

Jay Hinrichs · Answer

@Rick Alvi  now moving around changes things somewhat but I think one of the biggest over looked items especially west coast investors or good appreciating Chicago or north east areas.. is the 250 single 500k married tax free money you can make by owning a O Occ sfr... its the greatest tax treatment we have in the US in my mind..

For me the fact that I bought my first Owner Occ in SF bay area in 1975 and have owned 6 Bay Area owner occs over a 30 year period and once sold there was significant tax free profit on EACH sale... I did not need to buy cash flow RE and take the rental risk I would have needed to won 100 mid west rentals and had no rental issues for 30 years to make the same after tax money I made on West Coast TRUE tax free profits.

now if you see a run up in Houstan then go for it.. in non appreciating markets then rentals are probably better

Patrick Britton · Answer

Definitely house hack a four-plex with FHA loan.  keep in mind that 100% of the down payment can be a gift.  as well, check to see if Texas has any sort of down payment assistance programs.  WA, CA and OR have a very nice grant program that more than covers the 3.5% min down payment.  So there are people in those states buying four-plexes and paying nothing out of pocket.

Scott Weaner · Answer

Logan A. Bingo!!

Brandon Ingegneri · Answer

Do both in one shot!  Buy a multi, hack it, then use that to get your next investment or your own personal residence.

John Dombrowski · Answer

@Patrick Britton, what is this grant program you are referring to in CA. I would be interested in something like that.

Hiro Kakeda · Answer

buy sfh for yourself in nice/safe area, and then rent it after you decide to move overseas. If you can provide your budget, I'm sure more people can help you. :)

James Gorman IV · Answer

Free advice maybe worth what it costs you.

This matter is your to decide. Please do consider carefully your option, by doing your

best to analysis what to do from a net present value or worth basis including considering

taxes & fees, inflation, loss of purchasing power of the dollar, property management & maintenance costs if any, and the prospect of other impacts on you.

Dave Hurt · Answer

@Rick Alvi it is hard to beat the 'house-hacking' of a small multifamily using 3.5% down FHA financing, but you mentioned the price being a pain point in your market.

What is your budget?

I just ran a quick search in Houston and there appear to be quite a few triplexes and quadraplexes on the MLS that are in a reasonable range (moreso than my market of Charlotte, NC actually).

Buy myself a primary residence? Or Investment house first?

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