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Updated over 7 years ago, 08/02/2017
Buying a first home versus renting for a year
Hi @Aaron Ohri
I think its worth buying the house, down the road it cheaper to own than to rent plus you have full control of your property. Do you have enough or will have enough save up for a downpayment?
@Aaron Ohri , house hacking is likely the best plan for you to invest starting out.
There are markets in USA (Omaha may be one) wherein the renter is paying about 2% of the purchase price in monthly rent....and thus, really favors the landlord. If you can swing the 3.5% down payment and qualify for the loan as your personal residence.....having a couple roommates help pay the costs, build equity for you....could be a smart buy.
Your investment needn't be just a year.....but you could move on and acquire hack#2 and rent hack#1 thereafter. Caution though, if you're only in it for the short haul (1 year only?), the transaction costs of selling (realtor 5.6%, closing costs) can eat up most of your gains.....but otherwise, you could be launched into the first of many.
good luck
Thank you gentleman for your input! I agree with both of your points. I already have about $12,000 in a savings account to put towards down payment, plus I plan on being in Omaha for the foreseeable future, so I think it only makes sense. The other problem is that my roommate wants to move in somewhere by the middle of August so that he is settled in for Grad School. Hope he understands that waiting an extra month is worth it in the long run! Plus he lives with his parents who are already living in Omaha, so I am hoping he will understand.
House Hack!!
I know I would have done this strategy if I knew about real estate back in the day. That is such a great way to start!
I fully agree with the above posters. It does depend on where in American you are, Nebraska for example I don't know the market. After watching a tons of the video podcasts and reading several BiggerPockets books, I decided to do my first house hack. My only regret is not making a move sooner. You can always do a Section 121 later if you decide to sell your primary residence and move to another area.
House hacking sounds like the optimal idea. Just realize that at some point you will need to find new roommates as the individuals you currently plan to live with are going to move at some point.
When finding a home I would look for something with multiple entrances/living areas to optimize space for individuals who live different lifestyles.
Best of luck!
If you can get good numbers like that with a house hack then I would certainly go for that. Especially if your brother is in the game already, it will make it that much easier for you.
Look for an FHA loan to put down 3.5%. Live in it for however long, then either keep it as a rental when you move out or sell it.
As @Steve K. pointed out, the cost of buying/selling can really eat away at any money saved/made if this was to be a short term thing (one of the benefits of keeping a property as a rental after you leave it). Just something to factor in to your numbers.
Speaking of which, run the numbers for yourself to make sure you would be living free/very cheaply (thanks to the rent payments from your tenants), and that when you move out you could rent out your room and have cash flow. When running your numbers, try both with and without property management, so you know where things may land when you leave if you no longer want to manage the property.
Buy.
I chose a mediocre house for my first house hack and my maintenance costs came in waaay over what I expected. But the fact that it got me started was worth more than anything else, and it taught me how to hit the next purchases out of the park.
You won't regret getting started (except for that time when your head has been stuck under the sink for 2 hours and you can't get the $*#% pipes to stay together without leaking and have driven to Home Depot 3 times but can't bear hiring a plumber for something so small and your roommate has a hot friend over and when you look over towards her, nasty drain water drips in your ear and you bang your head on the bottom of the sink). Go for it!
I'm definitely going to look into the area and see what I can find for a decent 3 bed, 2 bath. Thanks for all the help guys!
Hint: for house hacking, it's all about the price per bedroom. A 4 bedroom usually only costs slightly more than 3, and will bring in a lot more rent income while you're hacking.
DONT BUY A HOUSE YET. Sheesh man I cant believe all the one sided advice on here. Dude, you have money in savings, just got out of school, and are starting your career. You're SINGLE, too. The next few years of your life are UNPREDICTABLE. You could get married (whether you see it happening today or not, you never know), plus doesnt it feel GREAT to have money in the bank? And roommates in your own home? Rarely works out for the best. Dont be in a big dang hurry. My practical preneur podcast talk about this in episode 007. Two biggest lies we are told revolve around homeownership and college degrees. Unless you find a house you can get into with like 30% equity at closing then just wait awhile. The first 4-5 years you're essentially just renting from the bank anyway... and stats show you WONT be living there that long.
Stay mobile. You dont want to be tied to a house if a better job comes up. I've seen it too many times where friends have to stress out and complicate their newly-forming lives over a stupid rental property that cash flows about $100 a month after expenses and tax. Values are not skyrocketing in Nebraska so just calm down and save your money. Enjoy starting your career, build more cash, then re-evaluate in a couple years... look for property at a big discount... not just a regular discount.
I'm going to have to disagree with Brent Smith on a couple of things in his post. First, I wouldn't necessarily worry about what is going to happen in 4-5 years. You can build up quite a bit of equity in a short time if you are playing it smart. Having renters in your home can be fine. If they are friends or acquaintances it will often be fine. Lay out the expectations and make sure that each roommate understands them. If you are a type A personality, then I would say no. You need to be a bit flexible and allow others to live their lives. While values are not "Skyrocketing" in Nebraska, we have enjoyed steady growth and prosperity for a long time and that doesn't look to be changing any time soon. The $150k houses seem to allow you to get a good value for your money. If buying a house and renting to your friends seems like its a fit for you, do it.
@Aaron Ohri , I recently went through the same decision-making process and decided to buy. I am currently house hacking with 2 other friends. I went to college in Omaha for 4 years and lived there for 3 after, so feel free to PM or give me a call if want to know more about the market and good areas to look. I would just make sure that you have enough of a cushion when you run the numbers to pay for any needed repairs or improvements with the money left over after your downpayment.
I think Brent brings up fair points if you really value flexibility. I bought my first house a single dude 4 years ago and have since gotten married and moved to a different state for my wife's job. But that doesn't mean I regret the purchases... far from it. It's not that big a deal to hire a good manager while I'm gone, and let them keep growing. I'm going to have to move again in 3 years... if I waited until I was really "settled" to start investing, I would have missed out on at least 5-7 years of returns for each house.
In buy and hold investing, time is of the essence. Buy well and buy soon.
@Aaron Ohri .. I wish I could go back 10 years when I was your age and make this decision. I would totally buy a 4-plex, tri-plex, or duplex. Rent one side out to tenants (people you don't know) and then rent out rooms on YOUR side to your friend/friends. Its going to be such a learning curve for you, but you will do great! Then when your are my age, who knows... you may have 4 4-plex's and be set for life at age 32. You are already smarter than me when I was 22. Real estate wasn't even a thing on my mind.. just girls and alcohol. Anyways good luck to you man.
Rent for a year. During that year get the lay of the land, network with RE pros and investors, educate yourself, make sure you like living & working there, and save. Then, after 1 year go month-to-month and go find a great deal. Taking the time to set yourself up for a great deal/investment is well worth $6k in rent ... you don't want to rush into a large purchase in a market you are not overly familiar with and your first time out of the gate buying RE.
Have you read Rich Dad Poor Dad yet? It's all about the numbers. You have Twelve Grand in the bank. Invest in real estate.