Should I Buy A Home Or Investment Property First? (Solved)

As a new real estate investor, you may be asking yourself if purchasing an investment property before buying your first home is a good idea.

Most experts agree that it is very lucrative to start with an investment property first rather than buying your starter home.

Most of us think that real investments can only come later on in life after we establish ourselves financially, buy a home, and start a family. However, the sooner you acquire your first investment property, the faster you’ll grow.

When you know how to correctly carry out a profitable real estate deal, having an investment property before your first home will pay off handsomely.

Choosing to rent an investment property will allow you to build leverage that will allow you to continue to build your wealth.

Most first-time real estate investors often want a house in an expensive area, but have to end up purchasing in other less expensive neighborhoods.

Instead of sacrificing this way, investors are opting for renting an investment property while it pays for itself and using that leverage to purchase their first home exactly where they want it, without restrictions or limitations.

I will review the advantages and disadvantages of each option to help you determine if your first real estate purchase should be your starter home or an investment property.

Buying a Home Before an Investment Property

The following are some advantages to buying a home before acquiring an investment property.

1. Your First Home Gives You a Sense of Stability

Having a stable home without the fear that your landlord may one day sell the building in which you reside, can give you a lot of peace of mind.

Being a homeowner means that you will never go through the destabilizing experience of suddenly having to move.

Many people prefer to start this way because it gives them a sense of safety. They likely don’t like risks and prefer to grow slowly over dealing with the challenges an investment property may pose.

2. Homeowner Tax Credits and Grants

One of the advantages of being a first-time homeowner is that you qualify for tax credits, sizeable grants, and other assistance programs to help you acquire your starter home.

Assistance is often provided by local and state offices. This type of support can make a huge difference for first-time homeowners that are looking to buy their ideal property right from the start.

3. You Won’t Experience Limitations In Your Own Home

When you rent your living space, you have to ask the landlord for permission to do any type of modification. Owning your own home means that you will be able to do anything you wish with the place.

4. No Additional Expenses to Maintain a Rental Property

A rental property comes with yearly maintenance costs. The property can certainly generate monthly income, but as with all businesses, there are operating costs involved.

As a homeowner, you don’t have to concern yourself with the endless challenges of being a landlord. You will not have the legal responsibilities that come with owning a rental property.

For some people, that is a huge relief, while for others, it is no big deal.

Buying an Investment Property Before Buying a Home

The other side of the coin that is quickly building popularity is buying an investment property before purchasing your first home. Many investors find this technique a lot more effective in building leverage.

They are able to rent their investment properties while living in a rented place themselves.

It may seem counterintuitive, but it is actually a great choice for getting started as a real estate investor.

Let’s review some advantages of buying an investment property before buying a starter home.

1. Keep Your Lifestyle While Growing with an Investment Property

Some people love their current lifestyle, but cannot afford to become homeowners without having to move somewhere less than ideal.

For instance, say you rent a beautiful apartment right in the city center of town. You have theaters, restaurants, and all the fun you want at your fingertips.

However, purchasing real estate at that location may be too expensive, forcing you to purchase a property in the suburbs where your lifestyle would completely change.

Instead of sacrificing until you accumulate wealth, you may opt for keeping your downtown apartment and having a rental property in the suburbs.

If you perform proper research and buy a property in a neighborhood that is greatly appreciating, you’ll be able to keep your convenient downtown apartment while seeing your investment grow.

2. An Investment Property Gives You Cash Flow

If you land an investment property at a low price while charging a high amount of rent, you’ll be able to generate monthly cash flow.

As long as you select good tenants, you’ll be able to start receiving positive monthly cash flow you can use as leverage.

It is a smart choice to have your tenants pay off your mortgage while leaving you with extra cash in your pocket each month.

Tenant rents can cover monthly costs such as insurance, maintenance, property taxes, and other expenses while still allowing you to turn a consistent profit.

Your investment property will continue to build equity over time as the real estate market rises.

Besides the monthly cash flow, you’ll also benefit from the long-term gains of owning an investment property when you sell or refinance in the future.

3. Tax Benefits When Buying an Investment Property

Owning an investment property will give many more tax benefits than most other types of investments. Each year, landlords can increase their profits significantly by filing for rental property tax deductions properly.

Too many property owners miss out on the tax benefits of owning an investment property and overpay on taxes. This is due to simply not being aware of tax laws that work to their advantage.

Working with a tax specialist that specializes in working with real estate investors is one of the best ways to ensure you will get the tax deductions you are entitled to as a property owner.

Let’s review some of the tax deductions you should be aware of:

  • Interest Payments

One of the largest tax-deductible expenses for property owners is the interest paid on the rental property. This expense includes the interest rate paid on the mortgage and other loans used to make improvements to the property.

Interest paid on credit cards used to cover rental property expenses may also be deducted.

  • Depreciation of Rental Property

Over time, it is possible that your rental property may decrease in value instead of appreciating. You must hold the property longer than one year for this type of deduction to take effect.

After the first year of ownership, real estate investors can deduct depreciation that results from the wear and tear of the property or plummeting market values.

  • Property Expenses

Most property owners don’t realize the extent of the tax deductions they are eligible for. Various property expenses can be deducted from your yearly taxes including:

  • Repair expenses except for improvements. This can include new paint, plumbing repairs, fixing broken windows, etc.
  • Use of personal property such as appliances used to furnish the property for tenants.
  • Insurance costs including premiums paid for theft, fire, flood, and landlord liability policies.
  • Additional expenses can include costs for travel, legal services, and home office expenses.

4. Create Leverage With Investment Property to Buy the Home of Your Dreams

Most first-time homeowners have no leverage and buy in an area that fits into their budget instead of fitting into their lifestyle.

They sacrifice unnecessarily and end up settling for a home that is inferior to what they want.

Creative investors know they are better off creating leverage with an investment property first. When you rent out an investment property, you will have access to the equity you accumulate through a refinance or sale.

You may also receive monthly cash flow that you can put towards your first home. When you choose this strategy, you will leverage enough cash to purchase the home of your dreams.

As a leveraged investment property owner, you will also be more likely to qualify for a wider selection of loans.

You may also secure a low interest rate with a significant down payment using the cash you have accumulated.

My Final Thoughts on Buy a Home or Investment Property First

It is important to take your time to imagine how you envision your first home. Most people rush into buying and living in their first property because they think it is the best option.

This type of mentality is very outdated now that the real estate market is booming and investors know creative ways to grow financially.

In my 12 years of experience as a real estate investor, I must say that I would recommend buying an investment property first to gain the leverage you need to purchase the starter home you truly want.

It is not necessary to give up your idea of your dream home.

Buying an investment property before your first home will create many opportunities for financial growth. Are you up for the challenge?

I would love to hear your comments about the challenges you are facing as a first-time homeowner and real estate investor.

Thank you and have a great day.

Leave a Comment

Your email address will not be published.

Scroll to Top