Secure Your Own Home
Before Branching Out

Question: I am a first-time homebuyer who is aware of the advantages of purchasing a first home as a future investment for rental income. But I have been unemployed for about a year and am concerned that this could cause problems when I attempt to qualify for a mortgage, so I am thinking about pursuing a commercial property with five units instead. Since lending institutions would use potential rental income when determining what I can afford, my hope is that this might offset my employment history. Is this a smart approach?

-- Juan, New York City

Juan: Your thought is a good one, but unfortunately, I don't think it will work. The world's easiest financing is available on a single-family home that you plan to move into. Even with a spotty income history or credit problems, these days there are avenues to pursue in getting such a property, such as special-lender and government-assisted loans. Check out my new book, "How to Buy a Home When You Can't Afford It" (McGraw-Hill, 2002) for details.

When calculating income for the purpose of buying rental property, most lenders allow only about 75% of the expected rental income to be considered. This is then added to your own income when making the calculations to determine if you qualify for the purchase. In short, you probably will need more income and a better credit rating to buy investment real estate than a house to live in.

Concentrate on trying to get into your first home for now and put aside thoughts of investment property until a later date.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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