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Buying a rental before buying a primary residence

Started by Hayden, September 18, 2018, 07:31:07 AM

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Hayden

FS Community-

What are your thoughts on sticking to renting for awhile and buying a rental property before buying a primary residence. We are very comfortable renting and do not feel as if buying is right for us yet. We are currently renting a condo for 3/4 of what a mortgage would cost, and our landlord does all the maintenance required. However, we want to get into real estate within the next 3-5 years depending on the market. Would buying a rental property before buying a primary residence ever make sense? Would love to get some input here.
Very Respectfully,
Hayden

Sam

 It is highly likely that you will be getting into real estate at or near the top of the market. Therefore, buying a rental before buying a primary residence is illogical.

At least with a primary residence, you are getting some utility. A rental is all about the numbers, and the numbers are making less and less sense each year.
Regards,

Sam

myamnesia

I think it depends on location...where you want to rent to live and where you would buy to invest. For example, it may make sense to rent in San Francisco and invest in Wisconsin, but I would not be buying in the overheated coastal markets at the moment.

Hayden

Myamnesia,

I have no interest in buying any coastal property at any point. I find the markets there harder to gauge. I am thinking about physical RE investments to keep close to where I want to be long-term. If I change my mind, crowdfunding might be the route I go. We will see.
Very Respectfully,
Hayden

swiz

Not knowing the full extent of your circumstances, it's tough to say with certainty. I will say this, everyone's goals, situation and needs are different and there's not hard and fast rule stating that you must own your own place before purchasing a rental.

If the math works, why not.

Getting a vacation rental in the rights spot could be  a great solution.

Check out ATTOM data for geographic trends and general RE ideas.

Sam

Quote from: myamnesia on September 21, 2018, 10:13:31 AM
I think it depends on location...where you want to rent to live and where you would buy to invest. For example, it may make sense to rent in San Francisco and invest in Wisconsin, but I would not be buying in the overheated coastal markets at the moment.

You are talking about my BURL strategy, which I think makes a lot of sense! https://www.financialsamurai.com/real-estate-investing-rule-rent-luxury-buy-utility/

I reiterate that I do not recommend buying a rental before buying a primary residence. Get your foundation in order first before going through the headache of being a landlord.
Regards,

Sam

Money Ronin

I really like the idea of buying an investment property before a primary residence given the tax law changes--assuming you are in a market where real estate is still a good buy.

I own both investment real estate and a primary residence.  Given the recent tax law changes where the mortgage deduction is limited on new primary residence mortgages (up to $750,000K) and property tax deductions are piratically worthless in a high income tax state like California (combined state tax deductions are limited to $10,000), it often doesn't make sense to buy a primary residence.  However, such limits on deductions do not apply investment properties.

I've even considered renting out my primary residence thereby maximizing my deductions and becoming a renter.  But with a family, the move is too much of a hassle.

While I disagree with Financial Samurai on this one, I will apply another one of his principles which is financial arbitrage.  Real estate prices seem to have peaked near me, but there are still other parts of the country where it makes sense to invest.  You can still participate in the real estate market through Realty Shares or as an out of town investor, but you will need a very good property manager or a friend who can look after your investment.