Buy or Invest First?

[Corben Briggs]

Quick question for any member! My girlfriend and I have been doing a lot of homework so that we can get into real estate investing ASAP. Naturally are first step is to find out where to begin. We are both pretty young (23/24 years old) living in Southern California and have little capital saved up to invest since we graduated from college only a couple of years ago. Her thought is to first purchase a house for us to own/live in and house hack it to lower our rent prices that we pay (we both currently rent). From there she thinks we should do some rehab work to add value and continue to save more money to invest in another home for us to live in while renting out the previous house completely for passive income. I myself am looking to purchase a cheaper & out of state single family to start our real estate portfolio as an invest that will give us some passive income right away. From yo guys experience, which idea would you recommend as a couple that is just starting off? Any feedback is appreciated! Cheers!

[Kevin Fox]

Hey @Corben Briggs

Great question.

The short answer: You are both right.

The longer answer:

You are right in thinking that the sooner you can begin generating rental income, the better.

Your girlfriend is right in the sense that buying locally will almost always make the most sense for your first deal. 

There are several reasons for this, but I think the biggest is how far your money can stretch with the down payment requirement for each.

Your motivation for wanting to invest out of state is the lower prices, which I certainly can’t blame you for, but here is the issue with that:

Say you’re looking at purchasing an OOS property for $170k. Since you will not be occupying the property, you will likely be required to put 20% down, which equates to $34k.

Now, alternatively, what if you are looking at deploying that same $34k in an owner occupied deal? That 20% down payment requirement drops to between 3.5-5%, which equates to $680k-$970k in purchasing power.

So, what does this mean in regard to your strategy?

That is ultimately up to you two to decide, but what I STRONGLY recommend is considering the purchase of a 2-4 unit property locally (which have the same 3.5-5% down payment requirements!) with strong value add potential.

By going this route, you accomplish virtually everything that BOTH you and your girlfriend are looking to accomplish, without giving up much of anything. 

She wants to stop paying someone else’s mortgage, lower your cost of living, and create value via forced appreciation. Check. Check. And check.

You want to lower your cost of entry, begin growing a rental portfolio, and receive rent payments which will help secure your financial future. Check. Check. And check.

To me, the answer is pretty simple from a financial and feasibility standpoint (not to mention the avoiding having to sleep on the couch because you didn’t listen to your girlfriend standpoint😂).

If you're interested in learning more about the strategy or would like help deploying it, just shoot me a message. My team and I help investors with these kind of deals all over SD county and would be more than happy to assist you guys as well!