Moving Out -- Rent, House Hack, or Buy?

Question

Hello everyone. I am currently living at home as I am finishing my last semester in law school. Later this year, I will be moving out after I start working and would like to live close to my job in Philly but am also considering the suburbs in South Jersey along the PATCO line. I will be targeting SFRs and small multifamily properties in those areas as well when I start investing.

I am curious as to what everyone's opinion is on this topic. What you would do when moving out and looking for you own place?

1) Would you rent and save your income for your first real estate investment? I have heard differing opinions on whether your first property should be an investment or simply your residence.

2) Would you house hack? While I love the potential of house hacking, it may not be an option for me at this time.

3) Assuming that house hacking is not a viable option, would you purchase a cash flowing property or a property with potential to cash flow after rehabbing it, live in it for a period of time, then eventually move out and rent it to a tenant?

I know this question is highly dependent on the individual and personal circumstances and preferences, but I would love to hear what route everyone would choose in this scenario.

James Masotti · Answer

@Ian Livaich - If you haven't read @Scott Trench book Set For Life yet than you should. To recap one of the books main points though. Live close to work and minimize your travel expenses. This is the best way to build wealth fastest. If you are able to do this by buying a property than great. If you need to rent for a time, than so be it. This boils down to do you subscribe to the Grant Cardone school of thought that owning is bad and renting is the better option due to the flexibility it gives you. Or do you want to build wealth through all the various benefits real estate gives you. No matter what you decide it doesn't preclude you from buying investments at any point along the way either.

Ian Livaich · Answer

@Amy Beth That is really helpful insight. On a BP podcast I listened to recently, the guest mentioned the importance of having an emergency fund. I think this will put me in the driver's set once I decide to get started. Do you subscribe to any rule of thumb for an adequate amount of an emergency fund (one month's income or a few month's income)?

Ian Livaich · Answer

@James Masotti Thanks for the great advice. I have not heard of that book but it sounds like the perfect read for my current situation. I just bought it. I'll let you know what I think once I get through it. If I rent, I will pick a location in Philly that would allow me to walk my job (for one time in my life) and if I purchase a property to live in and later rent, I would have a very short and manageable commute. I am leaning towards renting at this time. For my first investment property, it might be best to not cloud my judgment of finding a cash flowing property with choosing a place that I will want to live in for a period of time. In other words, I think renting removes emotion from the equation and gives me more flexibility (over purchasing a property, living in it, and renting it out in the future) to save more income and find a great cash flowing deal. Having said that, if house hacking is an option for me 6 months down the road, I would heavily consider that route. You hit the nail on the head - this decision will certainly not stop me from getting started. I am looking to put myself in the best living situation from the start that will allow me to start finding and investing in great deals.

Amy Beth · Answer

If your personal situation could change in a few months I would hold off on buying anything now. I would rent as cheaply as possible and use the extra money to pay off debt if you have it or increase your emergency fund. Once you sort out your personal situation you can then decide if you want to house hack or buy a SFH for yourself or as an investment. You could end up losing a lot of money and having stress if you buy now and then a personal situation causes you to want to sell in a few months.

Patrice Penda · Answer

@Ian LivaichIf I were you I would look for a property to either live there or rent it out.If house hacking is not an option, consider buying a duplex or triplex if you can.The most important things is for the numbers to stack up and the investment to make sense.You don’t have to necessarily live there. You can rent out the place.If it makes sense for you to live in there then great. That is always better and it is safer. If you find a property which makes sense financially but you cannot live there because you don’t necessarily like the area or it is too far from you spend your time, then rent it out.Real estate investing now is better than saving to buy later because it forces you to save.Every time you pay your mortgage, you repaid some of the principal you borrowed. It is money that would go back into your pocket.Owning real estate now protects you against inflation which would quickly erode the purchasing power of your dollars in a saving account And if you have made a sound investment, owning a property provides the best better returns. Better than the stock market because of the leverage you get.

Ian Livaich · Answer

@Patrice Penda I definitely agree that house hacking is the way to go. However, I don't think it is a viable option for me due to personal reasons, which may change over the next few months. So, would you prefer to rent and save income for your investment or purchase a property with the eventual goal of renting it out?

Patrice Penda · Answer

It depends on each person's circumstances but considering that you are probably still very young, I would say house hacking is probably the best option. You could live for free in your own house while building your real estate portfolio