Episode 4: Wealthbuilding Tip Buying a Rental That's Owner Occupied

Welcome to the Purpose Driven Real Estate podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, Paige Tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up, world back? We got another wealth building tip. I think today, Paige. Just a short little blurb. So what are we talking about?

A blurb?

A blurb.

We are talking about how to buy rentals. Owner occupied. Ooh, what does that mean?

Yeah, what does that mean? I don't know. Did you do that?

Yeah.

Okay. Paige talks a little bit about that in her. Her free course on home buying and kind of her journey. So let's just talk about that. One of the things we guide our clients through is how to build wealth. Real estate. Right. So we kind of need to work it backwards. And what does it mean to buy a rental property? Owner occupied? It means buying a house that you're going to occupy with the intention 12 to 24 months down the road. You intend to keep that property and buy another one or in three years.

Or three years, whatever fits your.

Whatever schedule. Yeah, everybody's different. They may never do it, but at least it's a plan. It's an option or an option.

So. So I am in the middle of doing this right now. And the, the reason that I did it was because Steve did it with his wife early on in his real estate buying career stages state life. So I bought my first home last year at 25 years old. And the whole idea of buying my first home, it wasn't an emotional buy. It was a. I had a plan for my retirement and down the line, and that was to make my first home into a rental.

Right.

So I chose the home based off of its rentability values and aspects and all that fun stuff. So I bought my first one and I'm actually getting close to purchasing my second one and making the one that I live in now a rental. Okay. And then I would like to do that a few more times.

Okay. So the goal is to continue to buy owner occupied and live it, which is, you know, perfectly normal, perfectly fine with lending guidelines. You know, it's, it's making sure that what your attention is and your intention is to live There as an owner occupant. So you're not defrauding anybody or doing anything that's misguiding the lending practices when it comes down to. And that's always a big thing that you want to be careful with, that you're not doing something that's fraudulent or illegal or any of that stuff. It's kind of like you can't buy an FH or use an FHA property product, which is typically a first time home buyer product, or you know, it's a government backed loan and use that for a rental property. So, you know, some, some people's plans. So you didn't do it FHA guided. And that's kind of something. I'll go off on a little squirrel trail here for a second squirrel trail. Well, because you, because some people would look at the, this buying process. So let's take your story for instance and go back to if you bought FHA and you kept that, great. But you couldn't buy another property FHA with that 3% down.

Right?

Right. Because you can only have one FHA loan at a time.

Got it.

So you need to go through that process of. Is, let's say in your plan you bought your first one fha. Well, the part of the plan would be to refinance that conventionally, you know, at some point in time to get out of the fha. But then it brings on a whole different ball game because if you refinance that conventionally, Owner occupant, you have to wait 12 months before you go buy something else. Owner occupant with conventional.

Right.

Because now you see where the intention comes into play.

Right.

It's kind of like refinancing and pulling cash out or keeping. So there's a bunch of different things there.

Lots of rules.

There's lots of rules. But that's one of the reasons that, you know, we built the wealth building program was so that we could guide people through the process and show them the plan so that they actually know what they're doing and when they're gonna do it so that they can have the strategy, you know, planned out.

There's an actual purpose behind it.

Right. There's, there's a purpose behind what they're doing. And sometimes it's also about, hey, if we know up front what the plan is, then it's much easier to work with the lenders. You know, our preferred lenders know our plans and what we're doing and they know the questions to ask to make sure, like, oh, are you going to Be doing anything else.

Right.

Because one little blip can like throw.

Off the whole throw the plan process. Kind of like one credit score point.

Paige. Paige is a little befuddled right now. Is that a word, befuddled?

No.

Well, anyway, she's befuddled. I think she's befuddled. She's a little pissy right now because her credit score came back one point point off, which you know, it's making a difference in. What is it, like $150 a month difference?

100? Yeah, about 150 to 200. But yeah, that's off topic. Yeah, you join my pity party.

She's a little bitter.

So what is the benefit of. Of having an owner occupied rental? Technically it's just an owner owner occupied home. Right. And then renting it out later down the road?

Well, there's a couple.

The benefit of that.

So there's a couple of benefits is that you're, you know, again looking at your plan and going through the process. If you're going to go out and buy a rental property or an investment property, your typical 20 to 25% down. So you know, your average price of $200,000, you're putting 40 to $50,000 down. Right. A lot of cash outlay.

It's just a significant difference.

So you think about the number of people that don't necessarily have the cash to put down on investment property, but eventually have one own rentals. This is a great way to do it is by starting off thinking about, hey, the house that I'm buying, I don't want to get too emotionally attached to because I can buy, you know, owner occupant, 5% down conventional right now and the rates about four and a half to five somewhere in there, depending on the day. So now you've got that lower interest rate, lower payment, it's owner occupant, you put 5% down. Now you still paying the mortgage insurance, but you know, eventually that'll be refinanced out or whatever the case may be. So if you're doing that, let's just say every two years, the biggest thing is when you also have to put that 50 grand down on a rental property, you're also typically paying a 1% higher on your interest rate. So rather than four and a half, you might be five and a half. So it makes a difference on your payment. Therefore the plan. By doing this, you continue to have an owner occupant loan which you can keep forever, especially on the conventionals. In fact, you can have individually, you can have 10, basically Fannie Freddie guidelines loans, you can have up to 10 owned before you have to go outside the traditional financing or whatnot. So you could do that 10 times and have 10 loans moving from owner occupant to owner occupant in that manner.

Right, got it. And you kind of went over the leverage piece. And because that's having an owner occupied house, you're getting more leverage because you're not putting down as much money and you're not as you don't have as much cash out of pocket when you're doing that.

Correct.

Okay, so how, you know, as we kind of conclude our short wealth building tip, our quick tricks and tips, how do you create a plan to do this and how are they able to get guidance to set up this plan?

So it's one of the things that we ask even our buyers when they call, like on our exclusive inventory, those types of things, we kind of walk them through the process again, asking them questions so that we can guide them to something and sometimes even asking them questions that they wouldn't even think about. Some people don't think, well, I could own rental properties, I could own real estate. Or maybe they don't want to because they've heard a horror stories.

Right.

So we try to walk through that process with them and the process is really simple, questioning. You know, some people that are already established that have kids and things like that, this is probably not a great plan for them, but they may be willing to make those sacrifices and move a little bit here and there in order to obtain some rental properties.

Got it.

And so that's really where we start, is guiding the buyer through the process and asking the questions that maybe most people wouldn't to the average person because they don't understand the wealth building process or the plan.

Thinking outside the box.

Correct? Correct. Sweet. Are you done? Done, done. Tip and trick. Yep, tip. Tricks.

Another nugget of knowledge.

Oh, a nugget of knowledge. Paige likes the word nuggets. Anyway, we hope you guys enjoyed this. Keep in mind that these wealth building tricks and tips are for you to help guide you through the process and actually to get you think about the purpose, you know, as we call our podcast, purpose Purpose Driven Real Estate. The purpose behind it is build wealth and have a purpose for your life and your future. So that's what we're here for. If you're looking for that guidance, just subscribe in the notes below. I think, Paige, we got something in there that you can subscribe to. The wealth building piece and if there's something we can do for you in the residential side as well, Valentine Group is certainly here to help you with that. We hope you guys have an amazing day. See ya.