Buying Your First Home as an Investment Property: Smart or Risky?

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Many of today’s first-time homebuyers are often wondering if their first home could double as an investment property. With rent increases, growing interest in passive income, and rising home prices, a lot of homebuyers are considering a bold move—buying their first home as an investment property. However, is this a smart financial decision or a risky move?

In this blog, we’ll explore what it means to invest in real estate through your first home purchase and help you decide if it’s the best move.

Key Takeaways:

Dual-purpose homeownership is rising: Many first-time homebuyers are exploring using their primary residence as an investment property, driven by rising rents, housing prices, and the appeal of generating passive income.
There are multiple strategies to get started: Options like purchasing a duplex, house-hacking, or fixing and renting out a home offer accessible entry points into real estate investing without owning multiple properties.
Benefits include tax perks, equity building, and early investing experience: Living in your investment property can provide lucrative financial benefits like offsetting mortgage expenses and learning to manage real estate hands-on.
However, it comes with risks and lifestyle trade-offs: Challenges like financing complications, tenant management, and less privacy can make this strategy more demanding, requiring detailed planning and a higher risk tolerance.

Buying Your First Home as an Investment: What Does It Really Mean?

Traditionally, purchasing your first house meant settling down, decorating freely, planting roots, and building equity over time. But today’s property investors are reshaping that narrative. When you buy your first home as an investment property, you’re primarily looking at property appreciation, rental income, and long-term financial growth rather than personal comfort.

If these are things that interest you, you might consider:

Renting out unused or spare rooms while you live in your home (also known as house-hacking).
Buying a multi-family property and living in one unit while renting out the other.
Purchasing a fixer-upper, living in it temporarily, and then renting it full-time or flipping it.

The Pros of Using Your First Home as an Investment

Utilizing your first house as an investment can offer more than just a place to call home. It can also provide an opportunity to build equity while generating passive income, helping you get into real estate investing early.

Many first-time homebuyers opt for this approach to create a lasting financial strategy or to help offset living expenses. Before getting started, understanding the potential benefits is essential.

Build Equity While Earning Income

You’re paying down your mortgage while gaining equity—and collecting rent to offset your living costs. That’s a win-win for your net worth.

Tax Benefits

Owner-occupied investment properties may qualify for certain deductions, like property taxes, mortgage interest, depreciation, and repairs (consult a tax professional for specifics).

Learn the Real Estate Game Early

Jumping in as a homeowner and investor provides you with real-world experience fast. It’s like a financial boot camp with a high upside.

House Hacking Opportunities

As one of the most popular strategies used today, house hacking allows you to rent out a portion of your property while still living in it—helping you live cheaply or even for free.

Potential Cons to Consider

While using your first home as an investment property has potential, it also comes with potential challenges. Understanding these possible drawbacks can help you decide whether or not this approach is right for you.

Increased Financial Risk

If you choose to turn your first home into an investment property, you’ll face certain mortgage obligations, unexpected tenant issues, and property maintenance. If the property sits vacant, you are still responsible for that mortgage.

Property Management Stresses

Even if you're still living in your home, being a landlord can be demanding—handling repairs, screening tenants, and resolving disputes.

Financing Can Be Complicated

Multi-unit properties or homes used partially for rent can require more significant down payments or different loan types. Some lenders may view you as a high-risk borrower, and getting approved could be a challenge.

Lifestyle Limitations

Renting out part of your home can feel like you're giving up your privacy. If you value your flexibility or solitude, this could be a deal breaker.

Essential Factors to Think About Before You Buy

Don’t skip on the numbers—using a cash flow calculator or working with a real estate agent familiar with investment properties to better predict your ROI (return on investment) is often recommended.

Before buying your first home as an investment property, ask yourself:

Financing: Will you qualify for a loan that supports investment use?
Cash Flow: Can rental income cover taxes, the mortgage, and maintenance costs?
Legal Considerations: Does your city allow multi-unit or short-term rentals? What are the landlord-tenant laws?
Location: Is the local area in demand for rentals? Are properties appreciating in value?

Real-World Scenarios: What Being an Investment Property Owner Could Look Like

Oftentimes, seeing how others have used their first homes as investment properties can make the concept easier to grasp. Below are a few real-world scenarios that show different ways individuals have balanced living in their houses while earning rental income. Each example highlights practical approaches based on location, goals, and budget.

Scenario 1: The House Hacker:

Sarah purchases a 3-bedroom house and rents two rooms to local college students. Their rent covers 75% of her mortgage, freeing up her income to invest elsewhere.

Scenario 2: The Duplex Investor: Matthew buys a duplex, lives in one unit, and rents out the other. Not only does he learn how to be a landlord, but the rental income he receives also covers his entire mortgage.

Scenario 3: The Fix-and-Renter: Katie buys a starter home needing minor repairs. After six months of upgrading the home with DIY projects, she moves into a smaller property and rents out the starter home at a higher rate.

Buying Your First Home as an Investment: Is It Right for You?

Before choosing to use your first home as an investment property, there are several vital questions you should be asking.

Ask yourself:

Are you willing to manage tenants or share your space?
Are you comfortable taking financial risks?
Are you thinking long-term about your real estate goals?
Do you have the funds to cover vacancies or repairs?

Conclusion

Buying your first home as an investment property can be a brilliant and lucrative strategy if you’re willing to do the research, take the necessary risks, and have the finances. While it’s not the conventional path, it’s an exciting and often faster route to building lasting wealth.