Do I buy my house first or my investment properties?

Question

Hello all,

I don't know what path to take. I am new to this world. I live in Clearwater Beach / Tampa area.

Going thru divorce and now I have to figure out what to do for me and my son.

This area is EXPENSIVE. (I cannot move far since we shared my son).Due to all this mess, we had to sell our house and now I live in a small condo. I Pay $1500/month. (just signed my lease for the second year)

The areas where is SAFE for me and my son to live is either a condo ($200K) OR buying a house for $400-$500K (I don't qualify for FHA)

Currently I have saved $80K.

Do I use it for downpayment for my $400K and stop throwing $1500 away (rent) OR do I do my first couple of investments with the 80K?

Any advise is greatly appreciated, my head is a mess...

Ali Boone · Answer

I'm always in favor of investment properties over buying a house for yourself. Here's why-

https://www.biggerpockets.com/...

Jed Haslam-Walker · Answer

Hi @Damary Fletcher,

I’m sorry you’re going through a tough time. And good for you for prioritizing your son’s well being.

First question is - if you break your annual lease on the condo you’re in will it cost you  significantly?

If it will and you have to wait a year then it would be wise to invest now - the price points in our market are set to continue to rise and if you invest now you could be benefitting from 3 of the 4 main revenue streams from Real Estate -  cash flow, appreciation and tax breaks as you wait for your lease to expire. By the time you come to reposition your living situation you could have built not only investor credentials with a lender - which are important to be considered a good borrower as you scale up- but you will also increase your revenue stream and therefore be in a position when you do want to move to open up more possibilities in terms of the price point you can achieve. At that point a MF hack in a nicer area might be more achievable. If you were to BRRR a property into the bargain you could refinance just as you’re ready to move or you could sell and 1031 into possibly a larger MF that you could live in, renovate the other units and that you could then stabilize and refi etc.

Try to avoid thinking of your rent as throwing your money away and instead consider that you are leveraging your capital in a more intensive way by investing outside your primary residence and choosing to let your landlord take care of Maintenance Expenses, Cap Ex, taxes and insurance so that you are able to more accurately predict your cash flows in order to pivot ready for your next move.

If your NPV on the deal is greater than $18000 ( $1500 x 12)  then you haven’t paid your rent anyway right?!

Brian G. · Answer

@Damary Fletcher both! What about house hacking where you buy a 2-4 unit property, occupy one unit and rent out the other’s. It’s absolutely the best way to start investing imo if you can make it work in your market. Tip: buy the nicest asset you can afford, ie a place you and your son would love to live. Good luck!

James Carlson · Answer

@Damary Fletcher

Sorry to hear about your situation. That's no fun. I hope it's for the best for you and your son.

We get this question a lot in Denver and Colorado Springs where we work. I'm always a fan of buying where you live. To dispel a myth it seems like you might have -- forgive me if I'm wrong -- you don't need 20% down if you're buying as your primary residence. You can use a conventional loan with only 5% down. So if you can do that, you'll still have cash reserves after buying where you live to invest elsewhere if you want.

I'd opt for an easy win. Look at those condos or townhomes in whatever safe areas you know about. If you're buying a $250k condo, that's $12,500 for a down payment plus maybe $4,000 in closing costs. That keeps a good cushion for you on this new step.

If you're open to it, the other option is some kind of SFH house hacking strategy. Buy that 3-4br SFH and rent one or two of the spare bedrooms. It's not for everyone, especially if you have a kid. But maybe you find a woman who you feel comfortable with and that gets you into a home with a yard, etc. but also has someone else helping to offset your mortgage payment.

I wish you the best!

Carlos Ptriawan · Answer

Definitely first house. Investment is hit and miss. First house is always good investment.

Cody Neumann · Answer

@Damary Fletcher

Combine both! Get a 2-4 unit building and live in one unit while you rent out the others (aka house hacking).

This is a great way to break into the investment space to get your feet wet and eventually move on to more deals in the future.

Ali Boone · Answer

Thanks!

Jonathan Vasquez · Answer

@Damary Fletcher I know how hard divorce can be on your well being and also on your sons. Coming from divorced parents i saw how hard it was on everyone and as a mom trying to make sure you make the right decision for your son and his well.

My suggestion, I know the condo may be small but if it's in a  safe neighborhood for your son keep paying rent at the condo and keep your eyes peeled for the right deal. $80k is a good amount to have to start investing with. At the end of the  day the investment will have your money grow exponentially and will help build some generational wealth for you and your son

Luke Rorech · Answer

Great article @Ali Boone

Michael Haynes · Answer

Hello Damary Fletcher and son. Do you know that you can Sell your Residence after two to five years Tax-free up to $250,000 in Profit? At the moment, you can Buy cheaper than Rent if you have the Downpayment etc. The safest thing for you and your son is to learn how to use Zillow and do your Daily online Search for a place to Buy. I tell my Tenants who look to me for advice on trying to get a place and escape from the Rat Race, that you should draw a 5 mile circle on the map where you have your JOB or go to school. Look for Houses, Duplexes, Townhomes and Condos separately. Compare the prices For Sale. Become familiar with what is being offered and in what areas. Find a prospective property and drive the neighborhood. Some of the Real Estate sites give you lots of information concerning Crime. I just paid Cash for a nice 3/3 Townhome with garage and pool in Valrico to get away from the mess in Tampa and the most crimes here are Shoplifting and Car Theft. If you want to Invest in Real Estate in your situation, you should look to start with a Home and hold onto it long enough to realize some Appreciation in the property before you Sell Tax-free as your Residence. Don't forget to Homestead for the Tax reduction and if you never bought a home before you could qualify for all the First Time Home Buyer discounts which include help from the City and Lenders. Tax-free and Tax-deferred Investing is working smarter and not harder.

Do I buy my house first or my investment properties?

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