Conventional wisdom suggests that a primary home might be the natural first venture into real estate. In fact, 52% of Americans believe owning a home equates to financial success. But some would-be homeowners are considering an alternative for their first-time real estate purchase: An investment property.

While about one in four (24%) home sales are to first-time buyers, not all of these are for primary residences. Some buyers are flipping the script, prioritizing the purchase of an investment property or even a vacation home first, and using it as a short- or long-term rental — while they continue to pay rent themselves. This approach, called “rentvesting,” can create a useful income stream and be an effective strategy to help fund a primary home purchase later on or build wealth over time.¹ 

Read more: Will 2025 be the year of the first-time home buyer?

Location, location, location

One in five (21%) of Americans spend time dreamscrolling for a home. But with home prices soaring 54% from 2019 to 2024, making that dream a reality could take longer than expected for some.

As the adage goes, location can be everything with real estate. But if a desired neighborhood for a primary residence is financially out of reach, buying an investment or vacation home in a more affordable area may offer a clear path to getting a foot in the door. Among Americans with real estate rental properties, maximizing cash flow is a primary goal for 51%, followed by long-term appreciation (31%).² Building a portfolio in more affordable locations creates the opportunity to generate an income stream and build equity — which eventually can be used to help fund a primary home.

Read more: Equity rich: How American homes built $30K-a-year in value

Bottom line on down payments

Saving enough for a down payment on a primary home can take time and sometimes be a barrier to entering the real estate market. But it doesn’t always require a huge chunk of capital to purchase an investment property, especially if it’s located in a market that’s less pricey. Though the median down payment for a home was 14.5% in the third quarter of 2024, first-time buyers can qualify for a conventional loan with just 3% down.³ And buyers who have a steady income and a strong credit score potentially can leverage their credit to secure financing. According to some financial professionals, credit scores of 760 or higher are usually sufficient to get the best mortgages. 

Read more: Will home sales spring forward after a tough winter?

Becoming an instant landlord

One potential challenge of purchasing a short- or long-term investment property is making the immediate transition to landlord. This can bring with it responsibilities of listing the property to find tenants, screening applicants, and vetting references and credit scores — and getting familiar with state and local landlord-tenant laws. It also means being on call to address any problems that arise or paying someone else to manage the property. Then there is the added financial unpredictability of potentially needing to make rental payments on a primary residence and mortgage payments on the investment property at the same time, which could be a financial burden during a tenant vacancy.

Taxes and other considerations

Owning an investment property can offer both tax advantages and drawbacks. The potential upside is that interest on mortgage payments and property taxes might be deductible, as well as certain maintenance expenses. However, the Internal Revenue Service does have rules for passive activity from rental or income-producing properties.⁴ A tax professional can offer more insight on the overall tax implications.

Like any home, in addition to paying property taxes, investment properties require paying insurance too, so it’s important to keep in mind the full financial impact and budget up front for those expenses.

Right place, right time? 

For those considering rentvesting as an opportunity to become a homeowner, the tide could be starting to turn more in favor of buyers: Existing home sales in March fell 5.9% month-over-month and 2.4% year-over-year, largely due to ongoing pricing challenges and mortgage rates lingering in the high 6% range, with 44% of sellers giving buyers concessions.⁵ The result could be more negotiating power for buyers.

Read more: Sellers sweeten the deal: 44% help with closing costs and repairs