Purchase Primary Residence or Save for Next Investment

[Gabriel H.]

Hello again!

I know this question has been asked before, but I'm hoping to get specifics on how I can compare numbers between 1.) purchasing a primary residence VS 2.) saving for my next buy & hold investment.

Background: I live near the beach in Los Angeles. I rent my current apartment for $2900/mo. I'm considering purchasing a condo where I would live for $600k, 5% down, competitive interest rate. Since the building has been built, it looks like it's appreciated an average of 5% per year, including the market crash years. It's in an area of high-demand. HOA's are high ($900/mo) because it's a "resort style" living - lots of luxury amenities that drew me to the property. I do know the implications and drawbacks of HOA. If it were a pure investment property, HOA would be a deal breaker. This condo is one of the least expensive in the building. Others range upwards of $1m.

I've done some research on the complex's HOA and it seems like it's well managed from what I can tell. It's a large complex so they have a lot of public info on their HOA website. Obviously, more might come out during DD when I get the financials.

In a typical buy & hold deal, I look for 12-15% cash on cash and somewhere around 30% total annualized ROI. Pretty straight forward.

How can I determine if buying a condo to occupy makes sense compared to buying another investment property?  What would my theoretically "cashflow" number be for the condo?  Would it be $0?  Would it be my monthly equity pay down?  Or would it be my previous rent that I'm no longer paying?  How do my tax savings factor into the analysis?

I've analyzed it these ways:  

Using $0 as cashflow, it's financially obvious that I shouldn't buy the condo. Total annualized ROI starts out negative but picks up at about year 10 and goes to positive single digits. If I weren't going to live there, it'd be an obvious "No".

Using my current rent, the total annualized ROI looks really nice. Cashflow is negative, but Total ROI is 25-30%, meaning this would be an appreciation play and would provide a nice roof over my head and some gratification of owning a nice home.

My guess is that it's somewhere in between these two scenarios.

I'd still continue investing in future buy & hold deals, but this would mean I'd probably have to take a year off to rebuild my savings. It would also be one less conventional loan I could use to buy an investment and would impact my DTI. But could also provide equity I could use in the future to help with investing.

Any input is always appreciated!

Gabe