AFTER CORONA IT IS BETTER TO HAVE A RENTAL PROPERTY ON THE SIDE OR ONE REALLY NICE HOUSE/ PROPERTY.

AFTER CORONA  IT IS BETTER TO HAVE A RENTAL PROPERTY ON THE SIDE OR ONE REALLY NICE HOUSE/ PROPERTY? 

PEOPLE in real estate investing, I can tell you that life is easier and richer if you start with a rental property BEFORE buying the really nice house. I have 100 of real life examples and people that are grateful that they followed my advice.

Why?

Buying a modest home, getting it rented and getting cash flow will set you financially for life versus buying the nice big home first.

1) It’s harder to qualify for a rental property AFTER you buy the really nice house because the really nice house probably comes with a higher payment using up most of your “qualifying income” leaving very little disposable income for savings and buying yourself security for retirement through rental properties.

2)  Buying a rental first if it has positive cash flow and it should, will help you save for other things in life.

3) Buying the rental property first will give you tax breaks that will save you on taxes or create a refund putting more money in your pocket that your own principal residence will not. The reason is that all expenses that are ordinary and necessary on a business can be written off, on your personal residence it’s interest, taxes and points on the original loan. These sometimes don’t even add up t the standard deduction so they are not usable. Consult your CPA for your specific situation.

4) The rental property will also become a SAVING AMOUNT bank that you can draw on for more investments or life expenses. A non-taxable cash out refi.

5)  The really nice home for yourself won’t pay you every month in fact its expenses that go up without the benefit of a renter helping with expenses. Over time your property tax go up and if you live in the property you are responsible. On a rental the renter is paying most costs and the rent goes up with inflation covering most of the increases you would see in bills like the property tax.

6)  If you buy the really nice home first I assume that your cash is now spent and you have to save a new pile of money of the rental

One caution: When you start getting that mailbox money from the rental you may not want to buy the really nice home but more paychecks through more rental properties.

Another caveat: if you have never owned a home before you buy the rental fannie mae and Freddie mac will not lend to you. They require that investors have prior experience so you will be going with a non-traditional loan.

This is why I recommend the following magical series to RE wealth building:

Buy 3-4 units (triplex or fourplex) as your first owner-occupied personal residence. You live in 1 unit and the rest are rented out. You can do 5% under Freddie Mac in some areas, you can do 3.5% under PMR, 0 down under VA and some non-traditional lenders will do 10% on units if you intend to live there. That’s what we call leverage!