This is one of the most common conversations I have with people.  It is first time buyers and their best option when purchasing their first home. 

My first question is always, are you looking to buy a single family home or a multi-family home.  This is a very important questions because there is a more strategic approach to take when you are buying a multi-family property. 

The reason for this is, when you buy your FIRST home, you have the ability to purchase that home using a minimum of 3-5% down.  You can put down as much of a down-payment as you would like, but first time buyers are more likely to be putting down the minimum. 

I do not say that negatively, I say that more in the fact that these loan programs are there for first time buyers to take advantage of. 

My honest answer is, in a perfect world, I would tell everyone to buy a multi-family property first and take FULL advantage of these loan programs.  The ONLY time you are able to buy a “multi-family/investment property” using a 3-5% down-payment is when it is your FIRST purchase or your ONLY residence.  On the other hand, you can buy a single family at 5% down at any point, even after owning another property. 

When thinking long term, you have to think of Real Estate as an investment, not just as a house that you are going to be living in for a certain number of years.  

Buying a multi-family first allows you to be more flexible in your next home purchase.  If you buy a two-family property for $450,000, with an interest rate of 4.625%, amortized over 30 years, your monthly payment is going to be $2,314.  With taxes and insurance and other fees, you are going to be closer to $2,850-$3,000 per month.  Now you rent out one of those units for $2000 and your monthly out of pocket mortgage payment goes from $3,000 to $1,000 per month. 

Just saving that $2,000 a month that you would have been paying over the course of 1 year, would give you $24,000 and be enough of a 5% down payment, and allow you to purchase a single family home for $450,000 the following year. 

Now, you would own your investment property, collecting rent for $4,000 per month (estimated) while, owning your single family, with a mortgage of $2,850-$3000 per month, and having the ability for that investment property to help pay your single family mortgage and easing your financial obligations.

That is obviously the perfect scenario, but that is the way you should be looking at Real Estate, as an investment and long term asset.  For more questions, please feel free to email me at Nick@herricklutts.com .