Buy a cheap place now or wait and save?

Question

Hey y’all,

I am based in central oregon and my fiancé and I are looking at purchasing our first home and begin building a portfolio of rentals. Currently our savings are pretty low, mostly because a significant amount of our cash is in the stock market and below water at the moment.

We have two paths we could take. Option one is to buy a pretty cheap little place (using either an 80-10-10 mortgage/HELOC or 80-20 with some help from family) now while rates are still relatively low and housing prices in the Bend area have seemed to have tapered off a bit. With this option we'd end up with a dinky home that's not immediately in the desirable part of town but close enough to command rent that would close to pay for itself but is less likely to rapidly increase in value over the next few years due to its proximity to the highway.

Option two is to wait and build up savings. I estimate that if we wait 9-12 months we will be in a place where our purchasing power will be more in the 700-800k range. This would allow us to purchase a home (at today's values) in the desirable part of town with either an ADU or an STR permit. Obviously the risk here is rates, inflation, and appreciation.

What would you all do? Would you wait, would you buy something cheaper, or would you figure out a way to finagle something nicer now? Looking for any and all opinions, no matter how out there!

Matt K. · Answer

Do not look at things from simply dollars and cents, look at value.

A cheap house that likely needs more repairs and improvements then a more expensive house could and likely would be a worse value unless you have a cheap way of getting those things done.

Paying 20k more for example on a mortgage is almost nothing per month and small bump to the down payment.  Vs paying 20k for repairs and upgrades....

At the same time, getting capital is often the slowest/hardest part and if you blow it now on something you could set yourself up for failure on a better deal in the future.

With all that said, 700-800k better get you some crazy rent because that's a decent chunk to deploy elsewhere...

What helped me was coming up with a goal of what I wanted per month in profit...then I found the most efficient way to do that. It's all a balance, but again the better you can define what makes something valuable to you outside just money the better you can do when looking at deals ...

Dave Skow · Answer

@Sam Tanner- thanks ..there are programs that  allow  down payments as low as 0 -3.5%    2)  in the future -  keep funds  you need for  real estate business out of the  stock market  3)  bying something now will get you into the  game  whereas   waiting to a " better  time " or more opportune time  might  make you  never get into the  game   4)  as  you arent  married  - make sure you have  your loan  approval soidly in place  and  also make sure  you have the  details  all hammered out regarding the  possible  property  if you end up  buying before you  get married  ( eg-  what happens to the property if  you  split up  before you are married ??)  - good luck and let me know if you have any additonal loan needs

Sam Tanner · Answer

Thank you all for your thoughts and comments! I really appreciate it.

Theresa Harris · Answer

It really depends on what the cheap house would look like.  If it is in a rough area of town where you will attract bad tenants, skip it.  If it is in an okay area, but simply a small starter home and you can get good tenants, do that.  I have a few in the latter category as the area is pricey and they've worked out well.

Hannah Atherton · Answer

I agree with @Kelly Asmus - an owner occupied duplex would be great! I would also consider getting a home now, capturing the appreciation, refinancing that down the road while it's still a primary and then buying another. My caveats are: don't buy in a location that will be not desireable or a house that's a little strange - those will be harder to sell down the line, and don't get something that needs a bunch of work (like @Matt K. mentioned). Also, I'd consider lowering your down payment using a conventional loan at 5% down. Say you purchase something at $550k (is that achievable there?) using $27,500 down. With appreciation at a conservative 5%/year - you're sitting on $150,000k - that's seems well worth the $27,500 down and a few hundred in PMI/month.

Kelly Asmus · Answer

Also consider that smaller home you buy now could be a perfect first rental property. Secure owner occupied financing, live in it a few years and make repairs, then when you have additional funds, but something bigger and rent the first place out. Build your real estate empire slow and steady. Or buy a small multifamily now with owner occupied financing, rent the other side for income (pays a good chunk of the mortgage so you can save for another property, stay in it a few years, then buy your first single family, again with the intention to rent it in a few years. Lots of ways to meet your goals.

Cory Carlson · Answer

Sounds like option 2 is the better buy if you will have additional capital and can acquire something that has and ADU. Bend is not going anywhere and despite the tick ups in rates (hopefully seen the worse of it now) Bend still has a housing shortage. Transaction volume is low low low... Wait until you're in a better place to buy.

Buy a cheap place now or wait and save?

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