Should I buy my own house now or continue to invest?

Question

Hello BP,

Hope all your investments are doing fantastic.

I’m looking for a bit of financial advice.

I currently own 3 single family homes under 3 conventional mortgages each. I do not yet have my own primary residence (I still live at home), but I would like to get one soon. Buying a house for myself would necessitate a 4th mortgage. However, I would like to continue to invest in real estate before I purchase my own place. My goal is to obtain 2 more cash flowing properties in the near future. The problem is the amount of conventional loans that an individual can have is limited. Some say 10 while others say 4. If it is 4, how exactly can I continue to finance properties before I actually purchase my own residence? Also, say I’m able to obtain financing for 2 more non-owner-occupied properties. How possible is it to obtain a conventional mortgage for my primary residence (which in this case would be a 6th mortgage)?

Furthermore, I read that in order for me to qualify for more than 4 mortgages, I must have 2 years of rental income history, be willing to put down 25% (at least), and have many 6 months of savings for expenses. Though that’s not necessarily impossible, that would mean I would have to wait another two years after buying my next investment properties to move out of my family’s house? (I hope not!) Is that the case? If so, is there any way around this or possible other financing solutions?

Jeff Dulla · Answer

@Kevin Drouillard Here is what Fannie says about multiple financed properties. Please note, this only pertains to second home and investment home purchases. Fannie states that if you are buying your primary residence, there is no limit on financed properties. Meaning if you have ten properties already and you are going to buy your primary residence, that cap will not come into play. They will finance the eleventh purchase if it is a primary residence.

Applying the Multiple Financed Property Policy to DU Loan Casefiles

If the borrower is financing a second home or investment property that is underwritten through DU, the maximum number of financed properties the borrower can have is ten. If the borrower will have one to six financed properties, Fannie Mae’s standard eligibility policies apply (for example, LTV ratios and minimum credit scores). If the borrower will have seven to ten financed properties, the mortgage loan must have a minimum representative credit score of 720; all other standard eligibility policies apply.

There are plenty of banks and lenders out there that will follow Fannie exactly so you shouldn't have an issue going up to ten investment properties. For people starting out, another issue and maybe a reason you are asking about your primary residence, is debt to income ratio. If you are worried that you will not qualify for more investments after you buy a primary residence because you have no rental income offsetting the monthly debt service, that is a valid concern. Like anything, you can easily have all of the questions answered and also come up with a long term plan, if you find a mortgage banker or broker that you trust to help consult you throughout your real estate investing life.

Andrew Syrios · Answer

Maybe you can qualify for an FHA and buy a duplex or fourplex in live in one unit while renting out the others. A lot of it depends on what you want too. If you're OK living in a 1 or 2  bed apartment and saving some money, that's probably a good call. Otherwise, I would rather own than rent.

Neil Henderson · Answer

It depends. Isn't the way every piece of real estate advice begins.

My personal preference, in the current market, would be to buy more rental properites (assuming the market you are investing in is not over heated and can't cash flow.)

You can absolutely get more than 10 loans as others have stated above. You just need to talk to lots of lenders. Don't just talk to the BofA's, Wells Fargos, Chases, etc. of the world. Go to the local credit unions, the local one and two branch banks. Ask them about delayed financing if you are doing the BRRRR strategy. Nail down what you are planning to do and THEN go talk to a bank about whether they will support your strategy. Don't buy a property and then go looking for a bank to work with.

Rich Senyszyn · Answer

If you can tolerate living with others, consider buying a large home and make two or three rentals. A fourplex is good, but may be small to live in for a primary. We bought a place, live in 3000sf, and made 3 apartments with the other 2500sf (solid wall separation). The Property is right on the edege of town on 5 acres, but only 3 miles from excellent schools. Rent covers note completely. Tenants are told to stay away from 3 sides of the house and no smoking on property.  We have a property management company deal with the tenants. Never a problem in several years. Zoning could be an issue but not in the county, at least for us.

Kevin Drouillard · Answer

Thanks all who have answered. It's wonderful to hear some of the different perspectives. I value your feedback.

@Jeff Dulla , thank you for your thorough answer. Debt to income ratio is my primary concern, and I'm glad you guided me in the direction of consulting with a mortgage broker. That's what I'll have to do. I'll be sure to ask them if they do underwriting through DU, that way I know they'll be following what you say above.

I totally agree with you @Nathan G. , I've been trying to do that here in NY, but it's really tough. Even with 20-25% down on a 2-4 family, my out of pocket expenses would be at least $1500 (after renting other units). However, if I can find one that's bank-owned or (possibly pre-forclosed) then I could most likely win. But just going and looking for an undervalued fixer-upper on the market would be impossible to get a decent deal.

Aaron Poling · Answer

I agree with what Jeff Dulla has said. You can have 10 conventional mortgages and the 11th one can be for your primary residence. I would suggest looking for a duplex or up to a four plex and purchasing as your primary residence. Live in one unit and rent the others, this would give you additional units without extra mortgages, and help scale your business quicker.

I also suggest doing this as your next purchase, as there are many tax benefits of home ownership. Of course talk to your lender and accountant first.

Good Luck!

Nathan Gesner · Answer

I agree with @Thomas S. and recommend getting into multi-family. If you're comfortable living with your parents then you should have no problem living in an apartment. You could buy a four-plex and occupy one of the units. With the appropriate deal, you can cover all your expenses and live there for free while building equity. Rinse and repeat.

If you need/want a larger place that feels more like a home, consider a larger, nicer duplex. A good duplex can provide you with private yard, an attached garage, and more of a "house" feeling but renting out the other half can dramatically reduce your expenses and possibly even allow you to live there for free.

Thomas S. · Answer

I would suggest you sell your present SFH properties and purchase a larger multi unit building instead. You will increase your cash flow investing in multi unit purpose built properties and will likely be looking at a commercial mortgage.

Purpose built multi unit rentals is you best option to grow your investments and your income.

Should I buy my own house now or continue to invest?

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