Newbie Question: Invest vs Rent

Mark Lord · 2015-02-08T20:28:05-08:00

Newbie here looking to get into the real estate game. Before I get started I had a few questions I was hoping to get some help with. Please forgive me if this is not posted under the correct topic. Here's the scoop. I have about 50k to invest. I'd like to start growing that money sooner than later. Possibly acquiring a flip, auction property or rental. I'm also in the market for a new home. I live in Las Vegas NV. So here are the options I have...1. Purchase a home for myself, and use the remaining money to invest? That wouldn't leave me much to invest with. 2. Use all the money to invest and move into a rental for the time being? I know renting for myself is a waste of money, but could allow for more opportunity for investing. 3. I currently work as a chef and make a good living (100k annually). I was also thinking about getting my real estate license to gain the knowledge of the field. Is this going to be beneficial to me I the long run?Ultimately I'd like to get into the investment / real estate field full time. It's a pipe dream of mine to become independent and wealthy doing something other than cooking! Any and all advice would be appreciated!! Thanks in advance for the help!

Dawn AnastasiPro Member

Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes

11y

@Mark Lord you could do a combination of #1 and #2 and buy a duplex or multi-family. Live in one unit and rent out the others. The benefit of this is the owner-occupied financing on the rental. Then after your owner-occupied holding period is up (usually a year or two) then you buy another and repeat the process.

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Marco Santarelli

Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes

11y

Hi @Mark Lord,

Welcome to BiggerPockets!

Glad to hear you want to start investing in real estate. That's the best way to create wealth and secure your future.

The answer to your rent versus own versus invest questions comes down to the numbers. And the market you live in can have a big impact on your decision too. For example, I know you live in Las Vegas, but if you lived in a more expensive market like coastal California then you'd be much better off renting because of the lower monthly expenses, and taking that down-payment and purchasing cash-flowing rental properties in other markets where the numbers make sense and you get positive monthly cash-flow.

Don't think of renting as a waste if the numbers put you further ahead financially by owning rental properties and renting your home for now. Again, this comes down to where you live and what you want to live in as a home.

Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

Continued success!

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James Wise

Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes

11y

@Mark Lord

welcome to the site.

You should buy a home for yourself then invest the rest.

If you buy a home for yourself you can buy it with a very low down payment. FHA loans only require 3.5% down for owner occupied buyers.

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Aaron Montague

Rental Property Investor · Brookline, MA · Member since 2013 · 1k+ posts · 777 votes

11y

@Mark Lord

Welcome to BP!!

On the heels of

@Dawn Anastasi 's advice, buy yourself a multi family home (MFH) and see if you live for free. Research "House Hacking" here on BP. House Hacking is a great way to see if you are cut out for being a landlord. Even if you don't like it, you should be living quite a bit less expensively than you did before.

@James Wise makes a good point with the low down payment option. If you find yourself a solid MFH, you don't have to burn though your entire savings on the down payment. Plus you get your tenants to build the equity for you.

If you buy right, you'll have quite a bit more in your savings by the end of the first year. If you find that landlording is something you enjoy, you'll have lots of cash for a down payment on another property.

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Elizabeth Colegrove

Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes

11y

Welcome!

We got started doing a mixture of both. In our area multi-family didn't make sense so we did single family. We bought a single family (fixer) for 0% down. We had a large amount saved. We used that as are "oh shoot" account. Once we were comfortable we could fund our repairs through frugal living off our W2 salary. We turned our "oh shoot" account into 1.5 "pure rental" houses!

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Nathan Richmond

Rental Property Investor · Visalia, CA · Member since 2014 · 64 posts · 4 votes

11y

I'm in a fairly similar boat. I have two houses that are both rentals, and I currently rent myself. I bought the 2nd one with an FHA loan. I lived in it for a year while updating it. I moved out and found a renter in September of last year. This past week I was able to refinance into a conventional loan (the house has appreciated enough in the year I have owned it to get 20% equity!!!). Now, once it has been rented for 6 months, if I'm correct, I'll be able to show 75% of the rent as income, therefore taking the mortgage off of my debt to income ratio and allowing me to qualify to purchase again. I'm really looking at purchasing a 4plex with an FHA loan. I'll live in one unit and rent out the other three......hopefully. At least that's he plan for this middle school math teacher. :-)

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Brent Coombs

Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes

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@Nathan Richmond , looks like you are on the right (slow, relentless) track towards financial independence. You probably need to be a bit more conservative on that 75% rent estimate; the usual figure bandied about here is 50% net because of the extra little and/or unexpected expenses that can really add up. Even if you can clear 75% of your rent, the banks are still likely to discount that percentage for borrowing calculation purposes anyway.

@Mark Lord , thanks for the post, and welcome. Looking forward to reading further about your ongoing REI journey. Cheers...

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Bogdan Cirlig

Real Estate Investor · Los Gatos, CA · Member since 2014 · 226 posts · 89 votes

11y

I second @Dawn Anastasi if you want to go that route. At least you will get to write-off the mortgage interest from your taxes :). Paying rent is lost money in your case, especially if you look to pay in mortgage + tax what you now pay in rent, then definitely lost money that's not even tax deductible. Duplex sounds good if you cashflow enough from your tenant. Again look at it *after tax* to compare apples to apples vs paying rent. Also you will save money by "depreciating" half of the duplex, that's indirect money, but it saves you in taxes paid every year.

Also, if you have the cash, try to leverage it and either flip smart alongside few buddies that know the game, though note flipping activity has slowed down across nation as inventory amount decreased and price increased.

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Newbie Question: Invest vs Rent

Newbie Question: Invest vs Rent

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