Your first real estate investment should be your home, if you don't already have one.

Now let's complicate things. If you already have a home and have built up equity in it, consider moving to a bigger home and converting your existing home to a rental. By making this move, you will be improving your portfolio position by upgrading to a higher-value home. Your existing home will probably be a good rental, unless it is very expensive. If you don't want to convert your existing home to a rental, consider either selling your home or refinancing it and using part of the money you generate to fund your real estate investing business. If you decide to sell, use a small portion of your proceeds on the sale as a down payment on another home that you can live in, so that you can benefit from the appreciation.

Maybe the scenario we just described struck you as unsettling, because it involves change. Yet change is exactly what you need to embrace right now in order to reach your goals. And although you may not have thought of it in just these terms, change is the main reason why you bought this book. So get ready to embrace it!

The reason you start your investment program with a home is that there are many advantages to home purchases that you won't have with other properties. For example:

1. Your down payment will be lower. In the current lending environment, you can structure no-down-payment¡ªor at least low-down- payment (10 percent or less)¡ª options on your home. Quite a few lenders are offering 80/10/10 plans. This means that they loan 80 percent of the purchase price with a first mortgage, provide a 10 percent equity line of credit, and require a 10 percent down payment. 

2. The interest rate you pay on your home is always lower than what you'd pay on an investment property, so this keeps your monthly payment lower. Lock in the best 30-year, fixed-rate mortgage you can. If you later decide to convert the house to a rental, you will have a greater chance of generating a positive cash flow right from the beginning with your longer-term mortgage at the lower interest rate.

3. More financing is available for owner-occupied housing than for any other category of real estate. This means that there is more competition for your business. It also makes financing much easier to qualify for. In later chapters, we will show you ways to increase your borrowing ability, but buying a home will be your best opportunity.

4. The resale market is typically strongest for residential properties. There are always more people looking for homes than for any other type of real estate, so your chances of unloading the property when the time comes are relatively good. 

5. There are tax advantages to selling your home without paying capital gains tax. This gives you more profit to reinvest in your real estate business.

For all of these reasons and more, your home should serve as the foundation of your real estate plan. As you will see, this will probably mean more moves for your family than either you or your spouse would like, because, if you follow our advice, you will continue to move into better and better homes over the years. Maybe this is the first time someone has suggested to you that you can make more by spending more. It may sound strange, but it's true. Yes, you do have to keep the payments in line with what you can afford, but the more you build up in equity, the more you can afford the next time you buy. Meanwhile, of course, you'll be living in style and enjoying your lives more.

Why Buy Today?
If you have never owned a home, consider making the move now. Given the favorable interest-rate environment, your opportunity is the best it has been in years, and the best it is likely to be until the next economic cycle. This could be a long time, since the last time we had rates in the 6 percent range was about 30 years ago. In many major markets across the country, double-digit appreciation has made home buying a very smart move indeed. Even in the vast majority of "softer markets," home appreciation still beats inflation by several percentage points. Appreciation, combined with low down payments, means positive leverage that works in the homeowner's favor.

 

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