Investment Property or Home first??

[Evan Kaczor]

Hello! I’m curious to hear people’s opinions so that I can accurately weigh my options.

I currently have enough cash to buy both a home and an investment property with conventional loans. I don’t have the greatest income ever. Within the year I’d like to buy my first home, and my first rental property. Would it be better for me to buy the rental before my first home?

Questions

-Is buying a home first going to limit my ability to buy a rental? (Because of debt to income tied to property)

-Will buying a home first make it easier to buy a rental? (Because of equity lines of credit and creative financing)

-Is buying a rental property first going to limit my ability to buy a home?

-Is buying a rental property first going to make it easier to buy a home? (Because mortgage is covered freeing up debt to income?)

Does it even matter what I do first? Thanks

DISCLAIMER! No I am not looking to househack. The price and scarcity of multi-families in the city I am moving into does not allow for me to do that.

[Sam Fickel]

@Evan Kaczor hi, loan officer here. I can talk in terms of conventional financing.

It honestly doesn't really matter where you start, as long as you do both within the same calendar year OR you suck up and pay more taxes to uncle Sam. I'll explain why later.

If you buy the primary first and the investment second, we can use 75% of the anticipated gross rent to help qualify for the investment property.

If you buy the investment first, we can use 75% of the gross rents to offset that mortgage to help you qualify for your primary purchase.

You didn't bring this up, but if you buy your primary first, live in it, then buy another primary and convert your first primary into a rental, we can use 75% of the gross rent to help you qualify. This is called departure residence income. I made a video about this just the other day.

https://youtu.be/iZ1OMKWfjFg

If your income isn't great, you'll want to do both in the same calendar year (or at least before you file taxes for the following year) because you'll file a Schedule E (rental income). The IRS makes it incredibly easy to avoid paying taxes on rental properties by making it possible to write off everything under the sun. This is good for your bank account, but horrible for qualifying, because conventional loans go off your net income. Oh, and we still have to start with 75% of rent.

Therefore, the most you'll be able to offset is with a lease agreement WITHOUT a schedule E.