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Should I Buy an Investment Property Before Buying a First Home?

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Tags: Home Buying & Selling, First Time Home Buying, Digital Home Lending, Mastering Mortgages

Buying an investment property before first home - is it a good idea? What are the risks and the rewards, and how do they align with your long term goals?

Let's start with a look at the real estate market. Since the days of the Subprime Mortgage Crisis of 2008, home mortgage rates have remained low (less than 5%). More recently, the economic effects of COVID-19 contributed to mortgage interest rates dropping again, this time to historic lows. Between these low-interest rates and home values soaring to an all-time high from a surge of new buyers, creating a low inventory of homes, now is a great time to consider buying your first investment property.

Like any investment, though, the purchase of an investment property comes with both risk and reward. Let's get a bird's eye view of both to help clarify whether buying an investment property before first home is an avenue worth exploring.

The Risks of Buying an Investment Property Before First Home

You don't have to be a top real estate investor to know that there are risks involved with purchasing an investment property, but going into an investment without seriously considering the "what ifs" can lead to real consequences that could affect your financial future. Let's play a game of Devil's Advocate, shall we?

What If...

Your Costs Outweigh Your Profit?

Let's pretend there's a global pandemic, and you or your renters face unemployment and can't pay rent, or you have a hard time renting out the other units in the building. How do you keep up with regular maintenance, utility costs, property taxes and the mortgage payment? Do you have an emergency fund of at least three months of savings you can dip into to cover the property's costs? Will the lack of funds set you back in your mission to buy a primary residence in the coming years?

You Get Sued?

There are several reasons why a tenant can sue their landlord. For instance, if a tenant or visitor falls down even one faulty step on your property that should have been in working order, you could be faced with a lawsuit. How would the costs of a lawsuit affect your finances and your timeline to buy a home? Ensure you're well versed in your state's landlord-tenant rights regarding maintenance repairs, property conditions and financial/rental agreements to help decide whether you're ready to purchase an investment property.

The Rewards of Buying an Investment Property Before First Home

Besides taking advantage of first time home buyer programs, buying an investment property before a first home comes with a few rewards.

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Cash Flow From Rental Income

If done correctly, you could find yourself living in the property while paying the mortgage and utilities with rental income from other tenants. Purchasing an investment property before buying your "forever" home is a great move to help save cash for a down payment, save money for emergencies or even pay off debt.

Build Equity

Investment properties give you the option to either sell, refinance or save the money you're collecting from rent and use it as leverage to buy your first primary residence.

Better Tax Deductions

Not only can rental property owners get significant tax deductions on mortgage loan interest, but they can also claim all property expenses like repairs costs, insurance premiums (fire, flood, theft, landlord liability, etc.), home office deductions, legal services and travel expenses.

If you're ready to explore the loan types and steps for first time home buyers should take in order to purchase an investment property, look no further than Wyndham Capital Mortgage. We're the digital mortgage company that makes buying your first investment home simple, efficient and 100% online. From the simple to complex investment property mortgage questions, we've got the answers you need to help make a sound decision. Contact one of your expert mortgage loan officers today to get started.

Interested in learning more about how Wyndham Capital can help you achieve your home lending goals?

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