Should I own my own home before I start investing in rentals?

Question

So I don’t really think I want to own my own home just yet. But I really want to get involved in real estate . Can i hear some pros in cons about this situation? I don’t want to buy a rental home and then not be able to buy my own home for like 7 years. I would really rather wait and buy my own home in about 3 years. But will having rentals affect what i will be able to buy ?

Account Closed · Answer

I don't think anyone has mentioned it yet, but it is certainly easier and cheaper to finance a primary residence as your first purchase than to finance your first rental property. The downpayment required for a primary residence is lower (sometimes substantially) and the interest rates will be lower too. So, one option you could consider is buying your primary residence, living in it for awhile and then deciding whether to convert it to a rental property later.

Shane Pawich · Answer

Thanks for all the info ! You guys helped out a bunch !@Rachel H. @Nadia White @Jimmy Dudley

Nadia White · Answer

So, my guess was right. But do you know that usually 75% of the rent income is included in the debt to income ratio, if you can show consistent payment of your tenants for at least 12 months? This may not be you deciding factor, but might help you nevertheless. But here are my 2 cents: if becoming a landlord is the vehicle you want to use to create your residual income, the sooner you start, the better. Getting into a mortgage for your own property could be more risky than renting. If hard times struck, it's easier to downsize by quitting your own landlord than negotiating with banks. Also, you might want to talk to an attorney on how to structure your rental ownerships in order to minimize your own exposure legally, financially and from a tax perspective. Tax rules have changed, not only in terms of deductible amounts, but also the required length of time you have to live in your property (or part thereof) before you can get tax deductions. Ultimately, I think it comes down to you gathering solid info, sitting down to write the pros and cons, evaluating your tolerance to risk and your own heart. Good luck! (and whatever your decision will be it will be the right one!)

Jay Hinrichs · Answer

@Shane Pawich  there are many who don't own and just rent and build up rentals.

J. Martin of BP fame is one.. and he is travelling the world.. his home is were ever he lays his hat..

I think those are some lyrics of some song.. :)

but for many families its about stability..

for me I have never rented I bought a home to live in when I was 19  and never looked back.

fate had me living in Silicon valley when I made my first buy in 1970s and well if your not familiar prices in those areas sky rocketed over the last 4 decades.. so it was the right thing for me in many ways.

Jay Hinrichs · Answer

this is a popular subject on BP and quite polarized if the thread gets going.

To me personally it depends on a few factors.

1. where you live.. do you live in an area were houses will appreciate or is it an area were values stay pretty flat over time.

2. do you have kids and life situation that you want stability without having to move if you don't want to move..

3. Long term tax implications especially if you live in a market were history has shown significant value increases.. and the reason I say that is the homeowner tax exclusion of 250 single and 500k married is one of the best tax treatments in the US>. so folks that live in high appreciating areas this is quite significant.

4. then lastly whats your tolerance for someone else telling you how to live in the home and such..

Jay Helms · Answer

@Shane Pawich - if I missed it, I apologize for the redundant post, but banks will look at your overall DTI (debt to income ratio) to see how risky you are to make a mortgage loan. Target DTI is >1.25 for most banks.

One strategy...You can potentially buy your rental house now, use all the funds & cash flow to keep paying down your rental property's mortgage and then pull a LOC off your rental property to provide as a downpayment on your personal home. Or sell your rental property that you should have an absorbent amount of equity. Time to dive in and find something that fits your criteria that will support your goals.

Jimmy Dudley · Answer

Don't buy a "home" until you have to. Renting is not throwing away money it is buying options. If you are buying right and need to move, no worries. You have flexibility with capital.

Rachel H. · Answer

@Shane Pawich It depends on your personal situation. Some do it because their situation is permanent and they know the location they want to live. Others do it to live in it for awhile and then to rent it out eventually to tenants. This method helps investors get in with less money down and lower interest rates being owner occupied and all. Buying your own home and going through the process is a great way to see how to buy real estate first hand. Though, I wouldn't suggest it if your situation is temporary or if you don't see yourself in that location for the long term. Hope that helps. Good luck!

Shane Pawich · Answer

Because I’m assuming the debt to income ratio is going to limit me a lot more on what i want for my personal home , if i have a rental first. But I’m not sure that’s why I’m on here trying to figure things out .@Nadia White

Nadia White · Answer

@Shane Pawich, could you please explain why you think that, owning a rental and having am mortgage on it, would keep you from buying your own house for 7 years? I may sound thick here, but I don't see the correlation.

Should I own my own home before I start investing in rentals?

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