House Hacks: How buying an investment property worked as my first home

June 15, 2022

With the real estate market hotter than ever, purchasing a first home is a daunting task. Here’s how two Minneapolis-area first-time homebuyers purchased duplexes as investment properties to get into the real estate market.

 

Buying your first home is a big step in building wealth and financial independence. For two first-time homebuyers (and friends) purchasing a duplex as an investment property made the most financial sense. Here’s how they broke into a hot real estate market by purchasing a rental property.

 

Finding the right investment property

While searching for his first home, Peter R. was looking at both duplexes and single family homes. “I wanted a duplex for long-term wealth building but it also gave me a lot of flexibility in terms of figuring out where I wanted to live and waiting out market volatility. If the housing market takes a dive, I can always hold onto this property for as long as I need to,” Peter says.

 

How investment properties can build wealth

Building wealth and equity was something that drew Marvin W. to purchasing a duplex, as well. “I work in commercial real estate and a lot of people I work with own a similar property. I realized that if I split the mortgage with a tenant, it was virtually the same as what I’d pay in rent. I was looking for something that I could use as cash flow in the future,” Marvin says.

 

Investment property renovations

While both of them found duplexes in Minneapolis, Peter’s was already renovated, while Marvin’s required a lot of improvements. “I installed 30 new windows, redid a kitchen with all new tile, vanity, appliances, drywall, fans and lights, the other kitchen with new cabinets, countertops, appliances and lighting, and both bathrooms” says Marvin. Because his duplex was a fixer-upper, his financing included a “Minnesota Fix-Up Fund” loan from the state that he was able to put towards renovations. “My thought process was to secure the loan, make the renovations and eventually raise the rent to reflect them,” Marvin says.

 

Investment property financing

Though they purchased two very different properties, their financing was similar. Both Peter and Marvin used FHA (Federal Housing Administration) loans which don’t require as large of an initial down payment. Though his FHA loan required him to pay PMI (private mortgage insurance), Peter felt that was a safer option now that he was a landlord. “You’re already putting down a lot of money for a down payment, and what if there’s an emergency at the duplex and I have a $10,000 bill? I wanted to old onto as much cash as I could as a buffer and I’ll refinance when I’m ready,” Peter says.

 

Transitioning into an investment property

Eventually, both Peter and Marvin plan to move out of their duplexes and use it purely as an investment property, but for now they live in one unit and rent out the other. “Once everything is renovated, based on what I believe I can get in rent, I’d like to move out, refinance and purchase a single-family home,” says Marvin.

The two friends purchased the duplexes in the same year, and Peter says making a similar big financial decision as someone he trusted was key. “Whether it’s an investment as a rental property or investing in your own future, it’s good to bounce ideas off of others who are doing something similar. Sharing this experience has been super helpful.”

As for buying another duplex? Marvin says he might be interested if the right opportunity comes along as a sound investment. “Of course, there’s strategy behind everything. If I believed in a location and saw it as an opportunity, I’d probably jump on that as well,” he says.

 

To learn more about owning an investment property, ask yourself these four questions.

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Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.