Can I buy my residence as an investment? - Posted by Timothy

Posted by John Corey on May 25, 2006 at 09:14:14:

In the book he explains how he rented two houses, one for 5 years so the other must have been for 4 years.

He talks about how the owner was concerned about having a stable tenant rather than trying to get the top rent.

One or both of the properties needed work but I am fuzzy on this as it was a year ago when I read the book.

I believe he converted to being an owner after he had more passive income than he needed to cover the cost of ownership.

John Corey

Can I buy my residence as an investment? - Posted by Timothy

Posted by Timothy on May 24, 2006 at 10:52:28:

I currently rent. I have never been through the process of buying a home. Though I currently am reading all I can get my hands on between the library and purchasing course material. I can and will invest in real estate.

WOW! Getting started is the hardest thing I have ever faced! I am 28 with a family of four and have a solid trades career. I can’t seem to break the mindset.

Should I find a duplex or other suitable multifamily to live in and rent while fixing/updating to increase cashflow? Or do I look for a single family home to do the same with? Do I look for a “nice” single family that will appreciate and wait it out? Or forget about my home as an asset and put my family in the home we will grow up in?
I know I just bit off a mouthful, however…I am suffering from “analysis paralysis”
I live in a rural area where all the projects listed above are quite plentiful, and better yet available in the 60-120,000 dollar range. Yes, 10 year old duplexes for 80-90,000.
I do have poor credit, though things are fantastic and all the repairs have been made, just have to wait out the listing of judgments,etc…
As a new person to all this I do feel like I might be rambling. I recognize the value of information on this website, and would love to hear what ya’ll might think.

Re: Can I buy my residence as an investment? - Posted by John Corey

Posted by John Corey on May 24, 2006 at 16:23:02:

Timothy,

  1. Focus on a decent area (does not have to be great) where you can easily afford the bills and the children have a good to great school system.

  2. If you want a close neighbor you can consider a 1-4 unit property to live in. It will help a lot with the cash flow.

  3. Some savvy investors suggest you rent where you want to live and you invest. The point is that in many communities (not all) you can rent a higher end home for a lot less than you would pay to own the property. John Schaub is an author that lives this way for 9 years while investing.

  4. If you do buy a home (rather than purchase a house as an investment), do not get over extended. If you say a while and pay the bills over time the home will provide a pot of equity. It might take a long time in some locations or it might be rather quick for the equity to build up. Hence a ‘home’ can serve double duty as both a home and an investment.

  5. You said that you have trade skills. That might be one area to focus. If you can apply your skills to something useful when it comes to home repair you can take on projects that some of us would just pass on. Granted you could also tie up a lot of time on a project (not your home, a house purchased as an investment) rather than putting your time into finding the next deal. Most investors will make more from finding great deals and from holding long term compared to rehabs. Rehabs can make money but they also can be a bit of a job rather than investing.

John Corey

Internet vs. Bank lending - Posted by Timothy

Posted by Timothy on May 24, 2006 at 14:37:53:

With less than perfect credit, but getting much better, I am looking for a mortgage to buy a home for my family.

I see many advertisments for mortgages and wonder if it is legit. Am I better off at my bank, who I think sends their loans out of house? Or is it Okay to test the water with “lending tree” and other companies?

Will shopping around for mortgages have a negative effect on my credit rating?

I will look for other posts regarding this topic as well.

Re: Can I buy my residence as an investment? - Posted by Brandon

Posted by Brandon on May 24, 2006 at 12:39:59:

Timothy,
Let me start by saying, Congratulations for taking the first step to giving your family a better life by investing in real estate. If you think you’re rambling, you’re doing so because you’re excited and don’t know where to start. This, Timothy, is your problem. There are many, many, many ways that people make money with and through real estate. Landlording, rehabs, flips, wholesales, speculation, new constructions, lease options, etc., etc. In your post you touched on at least 3 of these–Landlording, rehabbing and speculation (appreciation). I believe the first thing you must do is develop a plan of action. Narrow down exactly what you want to do. The best way is by reading a bunch of the posts on here. You’ll get pros and cons of every real estate “vehicle” just by reading other people’s experiences.

That’s my “macro” advice. Now let me give you some more detailed “micro” advice…
You’re 28 and have a family of four. You do not have the luxury of taking some risks that others may. You and your family have alot to lose. If, for example, you pay too much for a rehab that needs unexpected repairs, you could be facing some big problems. Not trying to scare you, just telling you to take extra caution.

I am a strong believer (and others may disagree) that you should not mix your real estate investments with your home. Now, don’t get me wrong, you can use some of these techniques to get a good deal on your family’s home. But, what may be a great investment may not be a good home for your family. Do you catch my drift? Here’s an example…Say you sell your single family home and buy a duplex. You plan on living in one and renting out the other. Let’s further assume that you can get it for 60 cents on the dollar and the rental income pays the mortgage. So, you could essentially live for free. Great Investment, right? Sure! You’re thinking, “Sign me up!” right? Well, what if you get a tenant next door that smokes heavily and is up at all hours partying? Is this “great investment” now worth your family’s lifestyle? Surely not.
Let’s take another example, this one a little different. Say, for example, your wife is a stay at home mom and for whatever reason you only have one car. You (the husband) leaves for work early and takes the car. You have children at home who need some way to get to school. In the process of looking at homes you come across a great house in a great neighbord AND it’s only 2 blocks from your school district. In this case, as the family man, this house may be worth 95%-100% of it’s asking price to you. Because it’s everything you want and your wife can walk your children to school everyday. But, as an investor, you run some numbers and realize that if you pay more than 85% of the asking price, you’ll have negative cashflow. This is a great “home” but not a good “investment”. Do you see where I’m going with this? Keep things separate, and don’t jeopardize your lifestyle.

So, to answer some of your questions…

Should I find a duplex or other suitable multifamily to live in and rent while fixing/updating to increase cashflow?..Yes, but you don’t necessarily have to live in one of the units.

Or do I look for a single family home to do the same with? Do I look for a “nice” single family that will appreciate and wait it out? …NO, NO, NO, NO, NO, NO, NO. Never, ever invest for appreciation only. Especially now! Real estate is so wonderful because it has so many income streams: cash flow, tax advantages, tax write-offs, appreciation, etc. Appreciation alone is not enough. Sure, it has made some people very rich but, it’s a risk that some people can’t take.

Or forget about my home as an asset and put my family in the home we will grow up in? Yes. And, then invest with money on the side. You can not forget that this real estate thing is a business. You have to run it as one.

So, to sum up, develop a plan. And then find a way to put it into action. Learn to search the archives on this site and you’ll be able to find any answer you need. Your credit issues that you talked about are probably a non-issue if you find the right mortgage broker.

Good Luck!

Re: Can I buy my residence as an investment? - Posted by David Krulac

Posted by David Krulac on May 25, 2006 at 06:15:06:

When John Schaub was “renting” for 9 years, he actually was renting with and option and ultimately bought that house.

Another idea - Posted by Skip

Posted by Skip on May 24, 2006 at 19:02:21:

I am considering buying a personal residence as an investment. First of all I would not buy a property unsuitable for my family. I am targeting the area where I grew up – a decent suburb on the city/county line. My plan is to buy a house that needs work, then live in it for two years to take advantage of the personal residence income tax exclusion. Yes after two years we’ll have to move, but who says we can’t move down the block? And of course we could decide not to move. Another option would be keeping the property as a rental (instead of selling).

One problem I see is that in my area (Baltimore) appreciation may have slowed or stopped. Whereas before I could have earned additional profit from appreciation, now the appreciation after two years may be zero – or even negative!

I know this idea is not original; it’s just one I’m considering. If anyone has opinions I’d love to hear them.

helpful perspective - Posted by Timothy

Posted by Timothy on May 24, 2006 at 14:28:41:

I do indeed get a little ahead of myself. Even after writing the first post I imagined many things I would say to myself!

Living in a rural area limits the amount of relationships with others who are interested in real estate, beginner or advanced. That is why I value this website and this forum so highly.

Thank you for your perspective on my situation!

Re: Can I buy my residence as an investment? - Posted by Eric

Posted by Eric on May 24, 2006 at 13:38:27:

Timothy,
I agree that your home is not part of your investment portfolio. I tell my wife to never fall in love with an investment property, but she can love our home that we live and raise our family in. I also don’t mind paying FMV for my home.