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When you have savings, you may have two choices: buying a primary residence or investing in a property. The decision-making process could be confusing, especially for new investors like Kamar, who asked for advice in the video. In this blog post, we'll explore the options and factors to consider before buying a primary residence or investment property.
Investment Property First
According to Beau Eckstein, the host of the Investor Financing Podcast, having $300,000 in savings could be a good start to investing in real estate. Instead of buying a primary residence, he suggests investing in an income-generating property to build passive income streams.
If you choose this route, you could either buy a duplex or triplex and live in one unit while renting out the others or purchase an investment property outright. A house hack could be an excellent way to reduce your initial investment, as you could qualify for FHA financing, which requires only a 3.5% down payment. However, for a conventional loan, you might need to put down 25%.
When it comes to underwriting, keep in mind that the gross rents on your investment property would be considered 75% of your income towards qualifying for a loan on your primary residence. So, before buying your dream home, make sure your income meets the requirements for your DTI (debt-to-income) ratio.
Primary Residence First
If you're a W2 employee or have a business, buying a primary residence first could be a better option. You may use your savings for a down payment and closing costs on your dream home.
However, before making a purchase, ensure you have enough income to support your monthly mortgage payments, property taxes, insurance, and other expenses. Your DTI ratio should be below 43% to qualify for a mortgage.
Final Thoughts
Whether you buy an investment property or a primary residence first depends on your financial goals, income, and personal preferences. Investing in real estate is a long-term game that requires careful planning, research, and strategy.
If you're still unsure about which option is best for you, reach out to an expert like Beau Eckstein for a free strategy call. With his 20 years of experience in the lending industry, he could provide you with valuable insights and help you create a finance plan to achieve your real estate investing goals.