Should I buy a Primary Home before and Investment Property

Question

Hello,I live in Atlanta and next year I plan on purchasing a home. I currently rent at $1250 a month. I have had 3 homes before but filled Chapter 13 during the housing crisis and released 2 and then the 3rd house in 2012. The Chapter 13 is no longer on my credit report and I have a score of 720 with 5K-10K to put as a down payment. I have 0 debt. My plan was to purchase a house $150K for myself, this should give me a mortgage of $850, and then 6 months later buy a $50K investment property. House hacking is a great Idea but I cannot seem to find Duplexes or Triplexes within my budget. A roommate is also not a option as I travel frequently and my friends all have their own houses. Any advise would be great. Thank you!

Anthony Gayden · Answer

Essentially your debt increases if you buy a personal residence. The more debt you have the worse your debt to income ratio and the harder it will be to get a loan. The problem I have with that line of thinking is that it doesn't take other things into consideration.Your personal residence can be turned into an investment property. I bought my home with the intention of living there for a while then renting it out. Why didn't I just buy it as an investment property? I only needed 5% down if I bought as owner occupied. As an investment I would have needed 20% down. Also investment mortgage rates are about 1% higher than owner occupied. Also I would rather my money be used to increase my net worth by increasing my equity rather than doing the same for my landlord.I would not continue to rent based solely on that issue. That isn't to say there aren't situations where renting would be favorable over owning. For example extremely high real estate cost areas where renting is cheaper than owning. Also personal situations like people who have to move frequently for work.

Andrew Bauer · Answer

Account Closed - another idea for house hacking is finding a house with potential for a basement apartment unit with separate entrance. This would keep your tenant out of your personal space, but still allow you to use the property to generate rental income. I did not find great options in the Atlanta area for a duplex/triplex, but my wife and I were able to find a house with a suitable basement space and are in the process of building out the rental apartment.I can refer you to the agent who helped me find the property if that would be helpful. Good luck!

Anthony Gayden · Answer

Its all personal preference. I bought two investment properties before buying my own personal home. I travel a lot too, and it was great having an apartment because I could just lock the door and leave. With a house you have to arrange lawn maintenance and security. Keep in mind you will probably need a much larger down payment for an investment property.

Rafael Norat · Answer

Account ClosedSeems like you're on the right path and have some lessons learned to guide you. How are you planning on buying the $150k home and investment property with only 5 to 10k? That's what you mentioned as down payment?As I sure you already know, it seems like you may have to look outside your area to find better numbers to work for you. That way you get your duplex to live in. I live in NJ and had similar issue, as my duplex doesn't cash flow. But I FHA'd, pulled $20k out, built up business credit, and got going with investment properties.

Account Closed · Answer

Where can I find a 4 unit property in Atlanta?

Account Closed · Answer

Any building codes I need to follow?

Account Closed · Answer

Sounds like the best option would be to buy a home with a finished or unfinished basement and rent it out. With the additional rental income I would be able to save for a down payment on a investment property. How would that work during tax season? Is it reported as additional income? How should I handle security issues? I know The basement should have its own separate entrance but how about the staircase leading to the rest of the house. Do I change the door and add deadbolt locks?

Account Closed · Answer

@Thomas Williamson.Can you explain further. "I personally don't have a personal mortgage and never will again"So are all your properties investment properties including the one you live in? Did you buy them under an LLC? Im trying to understand the strategy and reasoning.

Account Closed · Answer

@Rafael Norat. I would but the $150K home with 5K to 10K. 6 months later I would have another 10K to invest in a rental property. I have 2 jobs currently.

Rosston Smith · Answer

I recommend moving on a FHA loan with 3.5% down on a 4 unit property. This way, you acquire a home and an investment all in one.