Can Your First Home be an Investment Property?

Most first time home buyers approach house shopping with stars in their eyes. After all, your first home allows you to finally get all the things you have dreamed of as a renter. You will be able to choose and customize everything to match your lifestyle. It sounds like a dream, right?

Not so fast! Buying your first house is also a significant financial decision that could either ruin you or set you up for success for the rest of your life. As you undoubtedly know, real estate has a proven track record as an excellent investment in the long run. However, unlike what many people think, you don’t need to be firmly established with a cushy paycheck to become a real estate investor.

Your first property could be the initial move toward a successful career as an investor. Here are a couple of things to keep in mind to make your first home the best investment toward your future.

How to choose your first home to be an investment property?

If you haven’t purchased your first property yet, you have a couple of options. As a first-time homebuyer, you have opportunities that may not present themselves again in your lifetime. If you are young and single, without an established career yet, it will be a lot easier to relocate than late in life, for example. Besides, you will also have different opportunities when it comes to financing than someone with several real estate deals under his/her belt.

Buy a fixer-upper

Buying a starter home in need of work is a common way to start your career as a real estate investor. It is a particularly exciting option if you are handy and have access to people who are and can advise you. Sure, you will need to put some sweat equity and learn to avoid buying a money pit. Besides, it may not be in your dream location, and you will likely have to live for a time in less-than-ideal conditions. 

However, there are great rewards in building some equity in a fixer-upper. You will need to use it as your primary residence for at least a year (an excellent opportunity to keep an eye on your project?) to take advantage of owner-occupied financing. However, once all is said and done, you can rent it or resell it for a profit and move on to your next project. 

Buy a multifamily instead of a single-family home

Did you know that you can jump on the deep end of the pool and become a landlord as soon as you leave your rental apartment? Instead of buying a single-family like everyone else, take the road less traveled by purchasing a small multifamily property.

Apartment buildings with four units or less qualify for the same residential mortgages as single-family homes, as long as the owner lives in one of the units for at least a year. Sure, you may need to put up with other residents for a while. However, their rent will also be paying your mortgage, allowing you to live rent-free – or at least at a severely reduced rate.

How to turn your first home into an investment property?

So, you already own your first house, but you are still interested in investing in real estate? You are not out of luck. In fact, you can still leverage your first home to purchase more properties.

Rent it

If you own a property in a desirable area with high rents, you can always rent your first home and move into a smaller apartment or in a less popular place. It is a sacrifice and may feel like a step backward. However, remember that real estate investment is in the long run, and discomfort is only temporary.

Sell it

If your first house is a liability more than an asset (if you are upside down in your mortgage, for example), the best thing to do is to cut your losses. Being house poor is a burden that can follow you for decades. By selling your first home, you can start with a clean slate and use any profit as a down payment for a new property. Check out our tips on how to choose your next home to avoid making the same mistakes twice.

Take advantage of the equity you built in the house

Finally, did you know that you can use the equity you created in your first home without having to sell it? Maybe you have lived in your first home for a while or made a great deal on your first purchase. You can leverage this asset without sacrificing your quality of life by contracting a HELOC or a Home Equity loan to finance your next investment property.

Your first house is unlikely to be your forever home. After all, your needs will change as your family and lifestyle evolve, you may need to relocate for a job opportunity, etc. It is always better to keep a cold head when approaching your first home purchase and have a long term strategy instead.

What advice would you give to a first time home buyer?




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