Realty411 Magazine Featuring Lee Arnold from Cogo Capital | Page 88
A
classic question I get when talking to a would
be real estate investor is: “Shouldn’t we buy a
home to live in first before buying investment
homes?”
The answer, of course, depends on where you live.
When considering owning your own residence, there are
various layers of reasoning. Some are logic and numbersbased.
Some are emotional, traditional and familial.
Owning your own home can be associated with safety,
security, having “arrived”, satisfying family members’
aspirations, the stability of having a (hopefully) permanent place
to live, and so on.
Of course, everyone has a different set of emotional
considerations when it comes to owning a home.
These vary from person to person and, needless to say, are
hard to quantify.
In this article I will address the logical, numbersbased
approach to the question of whether to buy your own home as
your first real estate move, or rent and buy investment homes
instead.
The numbers tell the story
If you are considering buying your own home, the price of the
home matters, the rent required to rent that same home matters,
the local property taxes matter, the mortgage interest rates matter,
dwelling insurance rates matter, and even the new 2018 tax law
weighs in.
If you live in a market where property taxes are relatively low
(say, between 1 and 1.7 percent of the home price per year), and
insurance rates are reasonable, then if you are considering buying
a home under about $400,000, that should be a “no brainer” as
your first step. Between $400,000 and $500,000 would still be a
reasonable range to consider buying the home. In such a market,
once you step up to the $500,000 range and above, the math may
well start to turn as you climb higher in price, in favor of renting
a home in the area in which you live, and owning rental homes in
more optimal places.
In markets where the property taxes are high (like in Texas
and Oregon), and insurance rates are high (Texas again, for
example), the “no brainer” number may shrink to $300,000 or so,
while the range above which you may consider renting your own
home while buying affordable investment homes in other
markets, will likely be $400,000 or above. This is because with
high expenses for property tax and insurance, (which as a
homeowner you would be paying) the overall numbers and logic
“turn the corner” faster.
Should I buy my
own home first,
or rent and buy
investment
homes?
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