Buying an investment property while renting an apartment?

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Jesteroftheswamp
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Buying an investment property while renting an apartment?

Post by Jesteroftheswamp » Sat Jun 01, 2019 3:37 pm

I currently live and therefore rent an apartment, and for years I have debated on buying a home to live in or a home to at least rent out. With my current circumstances, it doesn’t make much sense for me to buy a house even though I could easily afford it. For me, buying a house to rent out is much more appealing.

I know a lot of other factors must be considered, but given favorable conditions can it be wise to OWN and RENT OUT a house while also renting the place I currently live in (apartment), or is it only beneficial to own and rent out a house if you also currently own and live in a home? I feel very good about renting the apartment I live in now and investing in property that I own and rent out to others and do not want to get deterred from this plan thinking I must own my primary residence just in order to own and rent another place as an investment.

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Re: Buying an investment property while renting an apartment?

Post by Sandtrap » Sat Jun 01, 2019 4:18 pm

I know a lot of other factors must be considered, but given favorable conditions can it be wise to OWN and RENT OUT a house while also renting the place I currently live in (apartment), or is it only beneficial to own and rent out a house if you also currently own and live in a home?
Please define "given favorable conditions". What are the favorable conditions?

How is this financially lucrative?

You pay rent which goes toward the mortgage payment that your landlord makes on your unit.

You pay a mortgage on as house/condo/etc. Then rent it out to cover the mortgage + property tax + insurance, etc.

Can you post the numbers to see if they hold water?

Income
Current rent
Purchase price of home/rental to be.
Mortgage payment of home/rental to be.
Total expenses of home/rental to be.
Expected market rent of home/rental to be.
Net income after all expenses and taxes of home/rental to be.
etc.

R/E income property can be a great investment whether one is renting or not or otherwise. It just depends.
j
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Watty
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Re: Buying an investment property while renting an apartment?

Post by Watty » Sat Jun 01, 2019 4:29 pm

Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
With my current circumstances, it doesn’t make much sense for me to buy a house even though I could easily afford it.
What about a condo?

This is an extreme example but in many condos you can rent or buy identical units in the same building, and for people in different situations either might make sense. I would have a hard time imagining a situation where it would make sense to to buy one as an investment property while you are renting a different unit in the same building.

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Re: Buying an investment property while renting an apartment?

Post by randybobandy » Sat Jun 01, 2019 4:30 pm

Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
I feel very good about renting the apartment I live in now and investing in property that I own and rent out to others and do not want to get deterred from this plan thinking I must own my primary residence just in order to own and rent another place as an investment.
If you don't want to be deterred from this plan it may be best to just go for it and not ask for input. I hope it all works out well for you.

-Randy Bo Bandy

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Jesteroftheswamp
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Re: Buying an investment property while renting an apartment?

Post by Jesteroftheswamp » Sat Jun 01, 2019 5:12 pm

Sandtrap wrote:
Sat Jun 01, 2019 4:18 pm
I know a lot of other factors must be considered, but given favorable conditions can it be wise to OWN and RENT OUT a house while also renting the place I currently live in (apartment), or is it only beneficial to own and rent out a house if you also currently own and live in a home?
Please define "given favorable conditions". What are the favorable conditions?

How is this financially lucrative?

You pay rent which goes toward the mortgage payment that your landlord makes on your unit.

You pay a mortgage on as house/condo/etc. Then rent it out to cover the mortgage + property tax + insurance, etc.

Can you post the numbers to see if they hold water?

Income: $110,000/yr.+
Current rent: $790.00
Purchase price of home/rental to be.: $150,000 or less
Mortgage payment of home/rental to be. Unknown
Total expenses of home/rental to be.
Expected market rent of home/rental to be.
Net income after all expenses and taxes of home/rental to be.
etc.

R/E income property can be a great investment whether one is renting or not or otherwise. It just depends.
j

Please see answers above. The blanks are unknown as I have not found those properties yet. I am still looking and just want to know generally if it is ok to own and rent out an investment property while currently renting/living in an apartment or if one should not have an investment property until they own their own home.

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Jesteroftheswamp
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Re: Buying an investment property while renting an apartment?

Post by Jesteroftheswamp » Sat Jun 01, 2019 5:13 pm

randybobandy wrote:
Sat Jun 01, 2019 4:30 pm
Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
I feel very good about renting the apartment I live in now and investing in property that I own and rent out to others and do not want to get deterred from this plan thinking I must own my primary residence just in order to own and rent another place as an investment.
If you don't want to be deterred from this plan it may be best to just go for it and not ask for input. I hope it all works out well for you.

-Randy Bo Bandy

I sense that you have much more that you could say on this topic.

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Re: Buying an investment property while renting an apartment?

Post by randybobandy » Sat Jun 01, 2019 5:41 pm

Jesteroftheswamp wrote:
Sat Jun 01, 2019 5:13 pm
randybobandy wrote:
Sat Jun 01, 2019 4:30 pm
Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
I feel very good about renting the apartment I live in now and investing in property that I own and rent out to others and do not want to get deterred from this plan thinking I must own my primary residence just in order to own and rent another place as an investment.
If you don't want to be deterred from this plan it may be best to just go for it and not ask for input. I hope it all works out well for you.

-Randy Bo Bandy

I sense that you have much more that you could say on this topic.
I don't have any experience to speak of, I just prefer to keep things simple. I can see your plan causing some headaches and that would make me shy away from it. It may work well for you.

ny_rn
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Re: Buying an investment property while renting an apartment?

Post by ny_rn » Sat Jun 01, 2019 6:04 pm

I rent in NYC, but control two rental properties in another state. Make sure the numbers work and you are cash flow positive. Don't forget it is a job and you do not just sit back and collect payments. Also, hold a significant amount of reserves.

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Re: Buying an investment property while renting an apartment?

Post by DVMResident » Sat Jun 01, 2019 6:25 pm

Watty wrote:
Sat Jun 01, 2019 4:29 pm
Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
With my current circumstances, it doesn’t make much sense for me to buy a house even though I could easily afford it.
What about a condo?

This is an extreme example but in many condos you can rent or buy identical units in the same building, and for people in different situations either might make sense. I would have a hard time imagining a situation where it would make sense to to buy one as an investment property while you are renting a different unit in the same building.
It’s makes absolute sense to do this for a simple reason: taxes. Take the standard deduction and itemize expenses/depreciate the identical rental with no SALT or mortgage caps.

The primary fiscal negatives are loss of the primary home gains exceptions and the investment mortgages being a little more expensive. Both are avoidable by living in the owned unit for a few years and then converting it into a rent (for a couple years while still in the primary home is in exclusion window). We rented our home and owned a rental home for years. The tax savings were impressive.

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Re: Buying an investment property while renting an apartment?

Post by Tyler Aspect » Sat Jun 01, 2019 6:47 pm

You should stick to three funds portfolio. No doubt you are strong in your chosen occupational area, but math is not your strong point.
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cliffrlp
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Re: Buying an investment property while renting an apartment?

Post by cliffrlp » Sat Jun 01, 2019 6:52 pm

I live in NYC and rent, the cost of ownership here is insane. I have a property in another state (1 condo) and currently that tenant pays enough to cover mortgage / HOA / taxes / property management fee. Was just hit with a condo assessment and now have to dish out $900 so the little bit of profit I did have just got wiped after 5 years of ownership (only in the black by about $35/month). At the end of the day, this place was intended to help with taxes, allow me open to business credit cards (for churning purposes) and once the mortgage is done it'll just be another stream of income (minus HOA etc) or somewhere I live a few months a year.

Have you thought of a duplex? Triplex? Quadplex? This is something I'd really consider if I were in a situation I could afford to buy one where I lived (meaning, if I didn't live in NYC lol). Live in one half, rent out the other and although they may not cover the entire mortgage they'll definitely help and when you're ready to move on you now have two incomes coming in through rents. A duplex/tri/quad can be purchased with a personal mortgage and that allows for easier approval. Something to consider and you could still hire a property manager that way the person next door doesn't know you're the owner and you can live like a renter bitching about the rent increases yearly.

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Re: Buying an investment property while renting an apartment?

Post by ThrustVectoring » Sat Jun 01, 2019 6:57 pm

Generally speaking you're better off buying the house you live in - there's significant tax and mortgage underwriting advantages for doing so. For one thing, the rent you pay and the rental income you collect do not offset. If you collect $1500/mo in rent and pay $1500/mo in rent, you have to pay income taxes on the $1500/mo in rent. It's offset by business expenses related to maintaining the investment property, somewhat, but still puts you behind simply having an owner-occupied home.
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Re: Buying an investment property while renting an apartment?

Post by crossbow » Sat Jun 01, 2019 7:01 pm

In your calculations, remember that you use post tax dollars to pay for your rent, and pay taxes on your rental income.

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Re: Buying an investment property while renting an apartment?

Post by Sandtrap » Sat Jun 01, 2019 7:20 pm

Okay, here's an actionable sequence when the conditions are favorable:

(favorable conditions)
1. Purchase price is excellent such that one could resell the unit in 1-2 years and recover all money invested. (don't buy high).
2. Rental market is fruitful in relation to demand and in relation to expenses *mortgage, insurance, etc". (yielding 6-8+% net CAP).
3. Owner has enough savings/working capital such that a vacancy or extended vacancy would not be harmful.
4. Etc.

Potential actionable sequences:

1. Purchase condo, townhouse, SFH. Live in one room. Rent other rooms. (one can rent and sublet but it can get dicey).
2. Purchase duplex, triplex, fourplex, etc. Live in one unit. Rent other units. (this can work out well, especially because it is likely self managed as in #1) (this can be a workable "first step" to those wanting to get into multi unit housing rentals as a "business".
3. Own condo, townhouse, SFH. Purchase another condo, townhouse, SFH, and rent it out. (self managed has the least expenses generally.
4. After #3 a number of times, consolidate to multi unit rental housing where there is more ROI per sf. (repeat, repeat).

Optional:
1. Rent because of job location, other factors that make it needed. Purchase home with ample cash where the home will be moved into at a later date, but rented out before that.(least favorable but can be done, maybe, big maybe, (wanna is not enough), if #1-4 favorable conditions are perfect and can be sustained.) Why is this tricky? Because you are paying to live where you live and also a mortgage on a rental. So this depends on one's cash flow/income, and "deep pockets", and the economy, and local R/E conditions, etc. One can end up owing a lot of money or stuck with a property that is "upside down".

2. Rent. Have ample cash flow and lots of working capital. Purchase condo, townhouse, SFH, as a "flipper". Flip it for profit. Rent in the interim.
(many zillionaires have travelled this path, many have also lost their pants. . . or skirts. :shock: :shock: :shock: )

3. Distance ownership. Distance rentals. Can be done well or poorly. YMMV.

There are a lot of assumptions here.
I hope this is helpful to you.
Aloha
j :D
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Re: Buying an investment property while renting an apartment?

Post by Schlabba » Sat Jun 01, 2019 7:44 pm

Jesteroftheswamp wrote:
Sat Jun 01, 2019 4:13 pm
I currently live and therefore rent an apartment, and for years I have debated on buying a home to live in or a home to at least rent out. With my current circumstances, it doesn’t make much sense for me to buy a house even though I could easily afford it. For me, buying a house to rent out is much more appealing.

I know a lot of other factors must be considered, but given favorable conditions can it be wise to OWN and RENT OUT a house while also renting the place I currently live in (apartment), or is it only beneficial to own and rent out a house if you also currently own and live in a home? I feel very good about renting the apartment I live in now and investing in property that I own and rent out to others and do not want to get deterred from this plan thinking I must own my primary residence just in order to own and rent another place as an investment.
You could consider your living situation and your investments as as unrelated. You made them related in your mind because you would be investing in a rental.

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Re: Buying an investment property while renting an apartment?

Post by LadyGeek » Sat Jun 01, 2019 7:50 pm

Jesteroftheswamp - You had a duplicate thread, which I've merged into here. The combined thread is in the Personal Finance (Not Investing) forum (real estate).
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Jesteroftheswamp
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Re: Buying an investment property while renting an apartment?

Post by Jesteroftheswamp » Sat Jun 01, 2019 9:01 pm

Tyler Aspect wrote:
Sat Jun 01, 2019 6:47 pm
You should stick to three funds portfolio. No doubt you are strong in your chosen occupational area, but math is not your strong point.
Need you to elaborate please

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Re: Buying an investment property while renting an apartment?

Post by randomguy » Sat Jun 01, 2019 10:32 pm

ThrustVectoring wrote:
Sat Jun 01, 2019 6:57 pm
Generally speaking you're better off buying the house you live in - there's significant tax and mortgage underwriting advantages for doing so. For one thing, the rent you pay and the rental income you collect do not offset. If you collect $1500/mo in rent and pay $1500/mo in rent, you have to pay income taxes on the $1500/mo in rent. It's offset by business expenses related to maintaining the investment property, somewhat, but still puts you behind simply having an owner-occupied home.
The situation has a lot of complications. For example I can't write off my property taxes on a home I own as state taxes put me over the cap. I can write them off on a property I am renting out. I can write off depreciation on a rental but not my home. You would have to crunch the numbers to see how it plays out for you.

At a high level the difference is that you don't have to buy a rental that you want to live in. You can pick locations and sizes that don't fit your living needs but do meet your investment needs.

I see pretty much zero reasons to link these choices. One is deciding how you invest. The other is deciding how you live.

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Re: Buying an investment property while renting an apartment?

Post by Tyler Aspect » Sat Jun 01, 2019 11:36 pm

Jesteroftheswamp wrote:
Sat Jun 01, 2019 9:01 pm
Tyler Aspect wrote:
Sat Jun 01, 2019 6:47 pm
You should stick to three funds portfolio. No doubt you are strong in your chosen occupational area, but math is not your strong point.
Need you to elaborate please
I looked at some of your previously posts. In one post you mentioned a possible investment deal with an initial $25000 investment, that the monthly income would be $500. You had a question about the annual rate of return for this investment. Although the rate of return appeared to be 24%, you did not realize the return is too high, therefore this deal belongs to the "too good to be true" category.

I would say that the chance is high you are unable to tell if a piece of property is a good deal, bad deal, or a fake deal. Beside, there is no evidence that commercial rental investment will beat the performance of total stock market. This could be a case of "di-worsification".
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Buying an investment property while renting an apartment?

Post by FinancialSnowboarder » Sun Jun 02, 2019 2:07 am

I live in Downtown Los Angeles (DTLA) but have rentals in Phoenix and Omaha. Those rentals cover my rent in DTLA.

I prefer the lifestyle of renting and puts me much closer to work, my clients, and friends. When anything breaks, I'm able to call my landlord and they'll repair it. Meanwhile, I can continue working or enjoying my time off.

Also, consider the opportunity cost of your capital for owning a house and time used to maintain or repair the house.

Llive where you want and invest in real estate where it makes sense.

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Jesteroftheswamp
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Re: Buying an investment property while renting an apartment?

Post by Jesteroftheswamp » Sun Jun 02, 2019 3:24 pm

Tyler Aspect wrote:
Sat Jun 01, 2019 11:36 pm
Jesteroftheswamp wrote:
Sat Jun 01, 2019 9:01 pm
Tyler Aspect wrote:
Sat Jun 01, 2019 6:47 pm
You should stick to three funds portfolio. No doubt you are strong in your chosen occupational area, but math is not your strong point.
Need you to elaborate please
I looked at some of your previously posts. In one post you mentioned a possible investment deal with an initial $25000 investment, that the monthly income would be $500. You had a question about the annual rate of return for this investment. Although the rate of return appeared to be 24%, you did not realize the return is too high, therefore this deal belongs to the "too good to be true" category.

I would say that the chance is high you are unable to tell if a piece of property is a good deal, bad deal, or a fake deal. Beside, there is no evidence that commercial rental investment will beat the performance of total stock market. This could be a case of "di-worsification".
You lack context. That post had absolutely nothing to do with RE or a deal that I was actually analyzing. I was just proving to myself that I can do math. Thanks anyway.

JGoneRiding
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Re: Buying an investment property while renting an apartment?

Post by JGoneRiding » Sun Jun 02, 2019 4:31 pm

If you want investment real estate income with no hassle just buy some REITs this makes the most sense in the situation you describe

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Re: Buying an investment property while renting an apartment?

Post by PeterParker » Mon Jun 03, 2019 11:19 am

I think a lot of "traditional advice" is bullocks.

That includes "owning" a house and a brand new car --- huge debts + mortgage payments keep workers from striking. It makes them nice and obedient and constantly spending and borrowing. LOT of marketing dollars encouraging home ownership and auto ownership in the US. I mean, it's all but required (a car) unless you live in Chicago or NYC or maybe a couple others anyway.

I'm not an expert in home ownership (I do not currently own).
Nor am I necessarily a real estate economist. But someone correct me if I'm wrong.

Although "a place to live" is necessary for survival (though debatably less necessary than food and water -- you could technically live at Walmart, a car, or a tent in dire circumstances) --- your "living quarters" really is a consumption. Like food. Like staying at a hotel.

Any house could be rented out for "X" dollars, let's say you have one that "could" rent out at $1,500 a month to a renter. Well, instead of making that money, you are making $0. Because YOU are consuming that $1,500. You could take your $1,500 and rent elsewhere, and rent out your place. (Yes I know there are other minor considerations like vacancy, but go with it).

So yes. OF COURSE you can rent yourself, while renting out a unit. BECAUSE, they are two different equations.

1. You pick where to live based on your unique tastes (you like trees, quiet, proximity to a Dunkin Donuts, etc).

2. You pick where to invest $200k+ capital based on expected appreciation + potential rental income. ROI, in other words. Does where YOU want to live, in particular, have the greatest ROI? LIKELY NOT.

3. How often would you say the capital/ % of your assets you want to invest in a highly localized real estate market, pegged to the amount you PERSONALLY want to consume on "living quarters" per month? Maybe you want to invest $500k in a particular property, but only want to spend $1300 in rent per month. If you lived in the $500k property, you'd likely be "consuming" 5k in "potential rent" per month.

So yeah. It's completely fine. In practice, it's easier to live in the property you want to invest in. Because there are tax incentives (I think) -- and there's just less headache dealing with renters or landlords. (you don't have to deal with either). But there's certainly nothing wrong with it.

The "double rent" situation allows you greater mobility as well. Because again, why mix "where you want to live this particular year" with "what I want to invest significant capital" in?

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Re: Buying an investment property while renting an apartment?

Post by Stormbringer » Mon Jun 03, 2019 5:15 pm

I bought my first rental property when I was 24, and my first home (a condo, actually) when I was 29. By that time I had 7 rentals. Nothing wrong with it at all.
"Compound interest is the most powerful force in the universe." - Albert Einstein

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Re: Buying an investment property while renting an apartment?

Post by mchampse » Tue Jun 04, 2019 1:25 am

randomguy wrote:
Sat Jun 01, 2019 10:32 pm
ThrustVectoring wrote:
Sat Jun 01, 2019 6:57 pm
Generally speaking you're better off buying the house you live in - there's significant tax and mortgage underwriting advantages for doing so. For one thing, the rent you pay and the rental income you collect do not offset. If you collect $1500/mo in rent and pay $1500/mo in rent, you have to pay income taxes on the $1500/mo in rent. It's offset by business expenses related to maintaining the investment property, somewhat, but still puts you behind simply having an owner-occupied home.
The situation has a lot of complications. For example I can't write off my property taxes on a home I own as state taxes put me over the cap. I can write them off on a property I am renting out. I can write off depreciation on a rental but not my home. You would have to crunch the numbers to see how it plays out for you.

At a high level the difference is that you don't have to buy a rental that you want to live in. You can pick locations and sizes that don't fit your living needs but do meet your investment needs.

I see pretty much zero reasons to link these choices. One is deciding how you invest. The other is deciding how you live.
Depreciation is a double edged sword as you have to recapture if you sell potentially at a higher tax rate. The SALT cap does change up a lot of things.

If you are making a profit after costs and depreciation, you have to pay taxes on that whereas if you lived in it, you wouldn't. You are also then paying rent which you can’t deduct. If you show a loss after deprecation, you might only be able to deduct against other passive gains if you make more than $100k.

Upon sale, if it’s your primary residence, you get the $250/$500k exemption. Though if it’s a rental you can do a 1031 exchange. (If you move out of your primary residence and rent for a couple of years, you can claim both).

Definitely run the numbers for yourself and consider your exit strategy as well.

Definitely do the math for yourself

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