What should homebuyers be looking for when hunting for their very first property?
Is an ugly home the right move? Or should you be shooting for your dream house out of the starting gate? Is it better to find an investment property first?
The Chicken and the Egg of Real Estate
Deciding to buy a home to live in or invest in is often like the chicken and the egg paradox. Which comes first?
One thing is for sure: renting isn’t a winning strategy. It isn’t even sustainable for the average person. Down payment expert Joe Tafolla puts it well: whether you rent or own, you are still going to be paying a mortgage for a few years. It’s just a matter of whether you are paying your own mortgage, and are building wealth in real estate, or if you are paying for someone else’s mortgage payment and wealth building?
If you haven’t purchased your own home yet, now is a great time. If you can lower your monthly payments when buying versus what you pay in rent now, then go for it. That will help you create an additional monthly surplus to invest with. It’s also great experience for investing in real estate for profit.
However, there are some people that will be better off investing in real estate, before buying their own homes. This might apply if your family absolutely refuses to move into any of the local homes you can actually afford. On the other hand, you may lack the down payment, or credit to get a large enough home loan. In this scenario, buying a couple of investment properties first can help. You can flip them and pay cash or put down a large down payment on your dream home. You can also hold them as rentals, and use the cash to help get approved for a loan, and make the payments.
The Hybrid Option
Small multifamily properties offer a unique opportunity. A duplex, triplex, or four unit property is treated pretty much the same as a single-family property by mortgage lenders. That means you can get the same type of mortgage deal as if you were buying a regular single-family home or condo for yourself. However, you get to rent the other apartments out for cash. In a four unit property, you can have 3 other people paying you rent each month. That might cover more than your share, and put extra money in the bank, while you live for free!
Buying Your First Home
Most first-time homebuyers shouldn’t be looking for their dream house. That would be a little like getting the latest Lamborghini or Rolls Royce as your first car. It doesn’t matter if you can afford it. Most people don’t keep either their first cars or first homes that long. Many buyers get stuck thinking that they need to find the one: a home they’ll live in forever and that they can actually afford. That’s rare to find in a starter home. Most people move every 3 to 5 years on average. Most people will move up as their finances improve. So get into something you can comfortably afford. See it as a tool for getting on the ‘property ladder.’ Use your profits from that property to upgrade to your dream home a little later.
So many individuals would start enjoying the benefits or real estate, and more agents would do more deals, if Realtors would more accurately set these proper expectations up front.
When Do I Get My Dream Home?
Don’t worry; you do get to have your dream home. Whether that is a shining new penthouse condo on the beach, an expansive ranch estate, or a mansion in the Hamptons, you can have it. But whether buying from a builder, or building your own from scratch, the best time to make this move is once your finances are right: once your investments are paying for it. When you have enough cash or monthly income coming from investments, buy your dream home. Then your dream home will really be the culmination of your dreams. You won’t have to make sacrifices in design or location, and you won’t have it turn into a nightmare or a financial burden because your stretched yourself too soon.