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How to Turn Your First Home Into a Real Estate Investment

This is an article that should be a necessity to read for every first-time homebuyer before begin shopping for a home.  If you're considering buying your first home, consider thinking far into the future, even all the way to retirement. 

It's quite likely that you've been reading about real estate investing and the many retirements funded with either flipping real estate or by buying income producing property (e.g. rental property). Hek, you may even like (or love) watching those flipping houses shows on TV!

But right now, you may be thinking that you'd like to invest in real estate later, and for now, you want to buy a home.

I totally get that.

Think about another possibility, a ready-made rental home investment when you close on your new home where you walk-in with the best opportunity to have your mortgage covered and generate some positive cash flow. If this is of interest to you, consider looking at available duplex homes in your areas of interest.

Here's How the Numbers Could Work

In a major southern city, on Zillow.com is a listing for a duplex with 6 bedrooms and 4 baths, half on each side.  The home is listed at $329,000.  In the description, it says that both sides are currently rented for a total of nearly $3,000/month. 

If you can get one tenant out of the home, you can buy this home for $319,000 as an owner-occupied dwelling with FHA 3.5% down payment financing.  At current mortgage interest rates, the payment would be approximately $1,938 including taxes and insurance escrows.  Assuming around $1,400/month from each tenant, you would occupy one side and continue to rent the other, and your net out-of-pocket would be only $538/month.  What kind of home could you buy for that payment?

Do keep in mind there are pros and cons to FHA financing. But if you're looking to become a real estate investor, this is one pathway to consider.

You're an Investor and a Landlord

Alright, so now you're doing well financially and saving money, as the single-family home you were considering would have had a monthly payment around $1,100.  You're not able to take the difference in that and the $538 payment, $562/month, and invest it however you want. You could save it, and with interest, you'd have the down payment to buy another rental home in the next few years if you wanted.  Or, you could pay down the mortgage faster on the current home. 

You were required to live in the duplex to get the FHA loan, but if you want to move out and buy that home of your dreams in a few years, you can do so. Then you'd have that double rent property paying your mortgage on your home with some left over for the bank every month.

Wait, really? Yes, really.

Note that suddenly, instead of buying that single-family home and working to make the payments and save a little every month, you've become a real estate rental investor with extra cash every month. You've created more options for the next few years, and you're well on your way to building a solid retirement that you have more control over.

Yes, you're probably going to have to do without some of the newest bells and whistles in the new single-family homes, but you can always use a little of that extra cash to spiff up that kitchen or outfit that man cave.

Think about it, sketch out the concept, and make it happen. Financial freedom is yours for the taking.

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