Investment Property, First Home, or Both?

Question

I’m a soon to be first time homebuyer in the next year or two but I’m also interested in investing in real estate. Would it be smarter to buy an investment property or a primary residence first? or would buying a duplex be the best option to get both?

Jaron Walling · Answer

@Alexia Healy Echoing what @Brittany Minocchi said about house hacking I'd strongly consider that strategy. It's not the forever plan but it works. The majority of successful investors sacrificed something to start the journey. House hacking doesn't require multi-family. When I got started I lived with family in a SFH. I moved to C+ class neighborhood and sold my motorcycle. It was the only way to move the needle.

Things novice investors should focus on:

#1 - Numbers (COC, ROI, estimating expenses, how do numbers affect an investment)

#2 - Saving (cutting costs, budgeting)

#3 - Sacrificing ____ (everyone has the ability, few do)

#4 - Adding value/network (REI is all relationships)

John Mathew · Answer

Hello Alecia! I would suggest House hacking. It is a modern lifestyle choice that borrows heavily from old-school ways and has been reimagined with the help of modern home-sharing platforms. House hacking is a way to reduce living expenses temporarily, or it can be considered the beginning of a career as a real estate investor. Either way, with the high cost of housing, it’s a method for using an asset you already have to afford their lifestyle, put money into savings or buy even more real estate investment property, all while building home equity. Hope this helps :D

Mike Webber · Answer

Everybody else has already said it, but as somebody who is local, I will pile on lol... Living in an expensive market where purchasing investment properties that cashflow is more difficult, house hacking is even more appealing. It can become the foundation of your whole investing journey. I love house hacking for first time buyers in the DMV. Can't say it enough. Over the long term, it will change your life without ever seeming that difficult or like you did anything extraordinary. I vote house hack.

Sam McCormack · Answer

@Alexia Healy

House hacking is a great and effective way to start! It will be the first way I buy a home and I recommend it. Using an FHA loan to leverage it to 3.5% down payment is the biggest advantage about it!

Ryan Leonard · Answer

Hi Alexia - there's no need for me to rehash everything everyone else said as I agree with them. The "house hack" is a very manageable way to get into real estate investing. This first investment will give you momentum for your future investments and this approach has been held in extremely high regard among the BP community.

Ricardo Hidalgo · Answer

I think it depends on the amount of capital you have on hand. I started buying investment properties before my primary homes since that leverage was producing me cash flow and higher margins. Once the market bottoms, I may buy a personal home just because its a low downpayment with rehab opportunity to immediately have a heloc to use towards more flips and builds.

Bradley Dosch · Answer

Hey Alexia, great question! Of course it always depends on your personal situation - it's almost always a smarter move to buy a primary and house hack it. So many benefits to this that make it more accessible: lower down payment, interest rate, and fees. It's real estate investing on training wheels - hard to mess up and easy to get right!

Gregory Sabers · Answer

Hi @Alexia Healy,

It's great that you are reaching out for more information and advice prior to making this decision! I try to answer questions by thinking of what I would do in the situation, and in this case, I have to agree with the other responses here. I dont think it can be overstated how powerful the house hack strategy is for your first property (and second, and third...)!

From the finance perspective, just by going for a primary residence, you are able to secure better rates, a larger loan, less down payment etc. Its a much lower risk strategy as well since its not an expense in addition to your rent like an investment property purchase would be. You can live in the property just a year or two and then move on to the next, but you get to hold onto the property with the primary financing still intact.

I could go on and on about the benefits, but there are plenty of resources on BP for in depth analysis of house-hacking. I'll just end by reiterating that its the best choice by a long shot, and please feel free to reach out if you have any financial strategy questions! Good luck!

Ty Ash · Answer

Hi @Alexia Healy!

If you're considering investing in real estate and are open to the House Hack, definitely start with the House Hack!!!

First, if you haven't read Rich Dad, Poor Dad, go pick it up today and dive into the difference between Assets and Liabilities that the book teaches so well.

Second, your return is going to be much better on your house hack due to the lower down payment needed. In addition to that, if you buy your single family and then start investing, you'll likely be putting at least 5x the amount down to get your first deal (~5% down house hack vs 25% down conventional investment property). You could get multiple deals done for the same amount of cash using the house hack.

Third, if you decided to try and house hack after buying the single family and want to keep that initial single family (say for an AirBNB) you'll run into some headwinds with the lender underwriting. An example is if you have a 3 bed 1.5 bath single family that's 1,200 square feet, you'll probably need to find a house hack property that has at least that criteria in the one of the units limiting your options.

This is just the top three things that come to mind for why you should house hack first. If you have any questions at all, please don't hesitate to reach out! Best of luck!

Investment Property, First Home, or Both?

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