Invest in rental apt or bigger down payment in primary house

[Gladiator]

Hi everyone,
I would like to get some advice on what you would do if you were in my situation. I'm 27 and currently employed in a stable job. I have managed to save around 95k, which I have in a savings account, and I have no debt. I want to use some of the savings to generate some more income, as right now it's just sitting in the bank losing value.

Within a year or so, I am planning to get married and buy a single family home.
I've been thinking about perhaps buying a 1/1 or 2/1 apt cash, which I've seen in short-sale or foreclosure for about 45-60k. I'm estimating after HOA and taxes this could generate around $600-700 a month. However, when purchasing my primary home, I would have to give a significantly smaller down payment, but I would have extra-income from the rental. In your opinion would this be a wise choice or should I keep the money for a larger down payment?

Thanks for your help.

[snshijuptr]

What are the costs of the houses you will want? You want to make sure you have 25% of the housing value for a down payment and closing costs. You don't want your rental to prevent you from meeting your own needs/wants.

Secondly, you may want to wait to spend the money until after you get married and buy a house because you may want the flexibility during these major life changes.

Finally, is this money in addition to a 6 month emergency fund? You will definitely want the e-fund once you are married and in a house. If you do have an e-fund you may want to bolster it with combining expenses, a new home, and possibly wanting a baby in the near future.

I guess my overall advice is to hold onto the cash until after you are married and in a house and thus have a better view of your future.

[Gladiator]

I just realized this should have been in the Personal Finance, not Investment & Banking. Sorry for the inconvenience.

[Gladiator]

Thanks for your advice. The emergency fund will come from my gf's savings...hopefully

If I buy the apt, I would not be able to put down a 25% on a house, more like a 10%. However, I would still be able to comfortably make the mortgage payment and duties with my monthly salary.

[photo]

How close is the rental property, and how good are you at home repair? Something to keep in mind that, as landlord, you are responsible for all upkeep. If the house is on the lower end of the housing spectrum, the likely tenants will be lower income, as well, which means that they may be less likely to keep up with the rent, utilities (if, in their names), and general well-being of the home. If there is a problem with plumbing, you either fix it yourself or hire an expensive plumber. If the neighborhood has an ordinance about mowing or snow removal, you are responsible, even if those duties are written into the rental contract.

Based on experiences of those I know who have had rental property, don't do it, unless you are experienced and/or have plenty of time on your hands to give attention to the property.

I invest in REITs but would be highly unlikely to ever directly buy housing property with the intent of renting out.

[rj.phila]

as an owner of multiple props, here's my advice, in order of best to worst option:

1-buy a duplex/triplex and occupy one unit, rent the other(s) out.

2-larger down payment on single fam home

3-buy 2 places.

i really think 3 is a suicide mission if you havent owned a home before. it will invariably be more work than you expect it to be. starting off with 2 is very ambitious.

[disneysteve]

I agree with the others. Do not buy a rental property if it impacts your ability to afford your own residence. That's backwards. First put down 20% on your own property (and only after setting aside at least a 6-month EF). Also, make sure you are contributing 15% to your retirement accounts. Then might be the time to think about rental property.

[97guns]

i agree with rj and a multi family dwelling. some duplexes are very livable, my mom has one that has a 2/1 and a 3/2. the 3/2 is 1700+ sq ft and is much bigger than the house i live in. going this route will always offer you the option of getting into a single family residence either by selling or gaining more cash flow from the property when you leave.

imo real estate is the fast track to self/early retiement

[Gladiator]

I guess I'll pass on this idea, especially as I'm not very handy doing my own repairs and will affect the main residence. I'll think more about the duplex idea. Thanks for all the advice.

[YLTL_Dan]

I thought about getting into investment real estate before I bought my house, and I'm glad I didn't. It's incredible how much money can be gobbled up by your personal residence. Also, if you can buy your house for cash, you can use the amount you would pay on a mortgage to start saving for real estate property. Have you thought about that - you would be in such an awesome position!