Living in my own rental property
If it is a separate unit from the rest of the property,  you can use that portion as an investment property.  the part, or unit, you are living in is your primary residence. The remainder is your investment. You are eligible to not pay capital gains on the portion you live in After two years. As always consult a tax accountant For advice...  Also, if this is less then 4 unit, you may he able to finance the sale of the home with an FHA loan. When you live in your own rental property, it no longer counts as your 'rental property'. It becomes your own living property and legally you cannot get tax benefits.
Think carefully about the added expenses.  It may still make sense, but it probably won't be as cheap as you are thinking.  In addition to the mortgage and property taxes, there is also insurance and building maintenance and repairs. Appliances, carpets, and roofs need to be replaced periodically.  Depending on the area of the country there is lawn maintenance and now removal. You need to make sure you can cover the expenses if you are without a tenant for 6 months or longer.  When tenants change, there is usually some cleaning and painting that needs to be done. You can deduct the mortgage interest and property taxes on your part of the building.  You need to claim any rent as income, but can deduct the other part of the mortgage interest and taxes as an expense.  You can also deduct building maintenance and repairs on the rental portion of the building.  Some improvements need to be depreciated over time (5-27 years).  You also need to depreciate the cost of the rental portion of the building.  This basically means that you get a deduction each year, but lower the cost basis of the building so you owe more capital gains taxes when you sell. If you do this, I would get a professional to do your taxes at least the first year.  Its not hard once you see it done, but there are a lot of details and complications that you want to get right. "One reason I have heard (beside to keep you paying rent) is the cost of maintenance and improvements.  If you hire someone else to do all the work for you, then it may very well be the case, though it is not as bad as a car. Many factors come into play:   If you are lucky, you may end up with a lot that is worth more than the house on it in a few decades' time. Personally, I feel that renting is sometimes better than owning depending on the local market.  That said, when you own a home, it is yours.  You do have to weigh in such factors as being tied down to a certain location to some extent.  However, only the police can barge in -- under certain circumstances -- where as a landlord can come in whenever they feel like, given proper notice or an ""emergency.""  Not to mention that if someone slams a door so hard that it reverberates through the entire place, you can actually deal with it. The point of this last bit is the question of home ownership vs renting is rather subjective.  Objectively, the costs associated with home ownership are the drags that may make it a bad investment.  However, it is not like car ownership, which is quite honestly rarely an invesment." "Consider buying a legal ""mother daughter"" property, rent out the top part, and live in the ""mother"" component." Of course, I know nothing about real estate or owning a home. I would love to hear people's thoughts on why this would or would not be a good idea. Are there any costs I am neglecting? I want the house to be primarily an investment. Is there any reason that it would be a poor investment?  I live and work in a college town, but not your college town. You, like many students convinced to buy, are missing a great many costs. There are benefits of course. There's a healthy supply of renters, and you get to live right next to campus. But the stuff next to campus tends to be the oldest, and therefore most repair prone, property around, which is where the 'bad neighborhood' vibe comes from. Futhermore, a lot of the value of your property would be riding on government policy. Defunding unis could involve drastic cuts to their size in the near future, and student loan reform could backfire and become even less available. Even city politics comes into play: when property developers lobby city council to rezone your neighborhood for apartments, you could end up either surrounded with cheaper units or possibly eminent domain'd. I've seen both happen in my college town. If you refuse to sell you could find yourself facing an oddly high number of rental inspections, for example. So on to the general advice: Firstly, real estate in general doesn't reliably increase in value, at best it tends to track inflation. Most of the 'flipping' and such you saw over the past decade was a prolonged bubble, which is slowly and reliably tanking.   Beyond that, property taxes, insurance, PMI and repairs need to be factored in, as well as income tax from your renters. And, if you leave the home and continue to rent it out, it's not a owner-occupied property anymore, which is part of the agreement you sign and determines your interest rate. There's also risks. If one of your buddies loses their job, wrecks their car, or loses financial aid, you may find yourself having to eat the loss or evict a good friend. Or if they injure themselves (just for an example: alcohol poisoning), it could land on your homeowners insurance. Or maybe the plumbing breaks and you're out an expensive repair. Finally, there are significant costs to transacting in real estate. You can expect to pay like 5-6 percent of the price of the home to the agents, and various fees to inspections. It will be exceedingly difficult to recoup the cost of that transaction before you graduate. You'll also be anchored into managing this asset when you could be pursuing career opportunities elsewhere in the nation. Take a quick look at three houses you would consider buying and see how long they've been on the market. That's months of your life dealing with this house in a bad neighborhood. Let me add a few thoughts that have not been mentioned so far in the other answers.  Note that for the decision of buying vs. renting a home i.e. for personal use, not for renting out there's a rule of thumb that if the price for buying is more than 20 year's (cold) rents it is considered rather expensive. I don't know how localized this rule of thumb is, but I know it for Germany which is apparently the OP's country, too. There are obviously differences between buying a house/flat for yourself and in order to rent it out. As others have said, maintenance is a major factor for house owners - and here a lot depends on how much of that you do yourself (i.e. do you have the possibility to trade working hours for costs - which is closely related to financial risk exposure, e.g. increasing income by cutting costs as you do maintenance work yourself if you loose your day-time job?).  This plays a crucial role for landlords I know (they're all small-scale landlords, and most of them do put in substantial work themselves): I know quite a number of people who rent out flats in the house where they actually live. Some of the houses were built with flats and the owner lives in one of the flats, another rather typical setup is that people built their house in the way that a smaller flat can easily be separated and let once the kids moved out (note also that the legal situation for the landlord is easier in that special case). I also know someone who owns a house several 100 km away from where they live and they say they intentionally ask a rent somewhat below the market price for that (nice) kind of flat so that they have lots of applicants at the same time and tenants don't move out as finding a new tenant is lots of work and costly because of the distance.   My personal conclusion from those points is that as an investment (i.e. not for immediate or future personal use) I'd say that the exact circumstances are very important: if you are (stably) based in a region where the buying-to-rental-price ratio is favorable, you have the necessary time and are able to do maintenance work yourself and there is a chance to buy a suitable house closeby then why not. If this is not the case, some other form of investing in real estate may be better. On the other hand, investing in further real estate closeby where you live in your own house means increased lump risk - you miss diversification into regions where the value of real estate may develop very differently.  There is one important psychological point that may play a role with the observed relation between being rich and being landlord. First of all, remember that the median wealth (without pensions) for Germany is about 51 k€, and someone owning a morgage-free 150 k€ flat and nothing else is somewhere in the 7th decile of wealth. To put it the other way round: the question whether to invest 150 k€ into becoming a landlord is of practical relevance only for rich (in terms of wealth) people. Also, asking this question is typically only relevant for people who already own the home they live in as buying for personal use will typically have a better return than buying in order to rent. But already people who buy for personal use are on average wealthier (or at least on the track to become more wealthy in case of fresh home owners) than people who rent. This is attributed to personal characteristics and the fact that the downpayment of the mortgage enforces saving behaviour (which is typically kept up once the house is paid, and is anyways found to be more pronounced than for non-house-owners). In contrast, many people who decide never to buy a home fall short of their initial savings/investment plans (e.g. putting the 150 k€ into an ETF for the next 21 years) and in the end spend considerably more money - and this group of people rarely invests into directly becoming a landlord.  Assuming that you can read German, here's a relevant newspaper article and a related press release. "You are a ""strategic"" investor, which is to say that you are in the best position to evaluate the deal because you already live there. Others don't have this advantage going in, which is why they might not be inclined to do what you're doing. Your biggest advantage is that you know at least one tenant. In essence, you are your own ""tenant"" for the top floor You also presumably have a pretty good idea of the neighborhood. These are arguments for owning your own home, although it does get a bit trickier with a second tenant, whom you may not know. Do check credit and references, etc. You might ask the landlord why he wants to sell. Presumably it's because he wants to retire or move, and not a problem with the property. But it does no harm to ask." Don't forget the risk of not finding tenants and having your property be empty. Or having bad tenants who destroy the place. Or just spending all your time  (because time is money) on general upkeep/maintenance (or, if you subcontract that out, making sure a decent job was done) There are tax strategies you could take advantage of if you own the property. Find local real estate investors that like 'buy and hold'. Additional strategy is to buy a property and sell it with owner financing (you use a Residential Mortgage Loan Officer to facilitate.) What is great is you can get a great % real return on your money without being a landlord. You need to get some thing called landlord insurance, tenants only covers his belongings. Any property damage caused deliberately or unknowingly is not covered in this, its upon the owner to get landlord insurance. A lot of people do this. For example, in my area nice townhouses go for about $400K, so if you have $80,000 you can buy one and rent it. Here are the typical numbers: So you would make $350 per month or $4,200 per year on $80,000 in capital or about 5% profit. What can go wrong: (1) The property does not rent and sits vacant. You must come up with $2100 in mortgage payments, taxes, and insurance every month without fail or default. (2) Unexpected expenses. A new furnaces costs over $5,000. A new roof costs $7,000. A new appliance costs $600 to $2000 depending on how upscale your property is. I just had a toilet fixed for a leaky plunger. It cost me $200. As you can see maintenance expenses can quickly get a lot higher than the $50 shown above... and not only that, if you fix things as cheaply as possible (as most landlords do), not only does that decrease the rentability of the property, but it causes stuff to break sooner. (3) Deadbeats. Some people will rent your property and then not pay you. Now you have a property with no income, you are spending $2100 per month to pay for it, AND you are facing steep attorney fees to get the deadbeats evicted. They can fight you in court for months. (4) Damage, wear and tear. Whenever a tenant turns over there is always a lot of broken or worn stuff that has to be fixed. Holes in the wall need to be patched. Busted locks, broken windows, non-working toilets, stains on the carpet, stuck doors, ripped screens, leaky showers, broken tiles, painting exterior trim, painting walls, painting fences, etc. You can spend thousands every time a tenant changes. Other caveats: Banks are much more strict about loaning to non home owners. You usually have to have reserve income. So, if you have little or no income, or you are stretched already, it will be difficult to get commercial loans. For example, lets say your take-home pay is $7,000 and you have no mortgage at all (you rent), then it is fine, the bank will loan you the money. But lets say you only have $5,000 in take home pay and you have an $1,800 mortgage on your own home. In that case it is very unlikely a bank will allow you to assume a 2nd mortgage on a rental property. The more you try to borrow, the more reserve income the bank will require. This tends to set a limit on how much you can leverage. You're aware there's no such thing as a cheap house in Jersey right? Rental values are listed in price per DAY to make them look less scary.   Also, no, you couldn't. You pay tax in the country you are resident in and the States don't equate property ownership to residency; neither does HMRC.   Interesting side note, in Jersey's neighbour Guernsey you can own a house but not legally be allowed to live in it due to the dual property market. 4) Beef up my emergency fund, make sure my 401(k) or IRA was fully funded, put the rest into investments. See many past answers. A house you are living in is not an investment. It is a purchase, just as rental is a purchase. Buying a house to rent out is starting a business. If you want to spend the ongoing time and effort and cash running a business, and if you can buy at the right time in the right place for the righr price, this can be a reasonable investment. If you aren't willing to suffer the pains of being a landlord, it's less attractive; you can hire someone to manage it for you but that cuts the income significantly. Starting a business: Remember that many, perhaps most, small businesses fail. If you really want to run a business it can be a good investment, again assuming you can buy at the right time/price/place and are willing and able to invest the time and effort and money to support the business.  Nothing produces quick return with low risk. As Andy T says, it is very common for landlords to have a residential mortgage (typically capital + interest) on their own home, and a buy-to-let mortgage (typically interest-only) on each rental property that they own. However, before going down this route, you will need to do some homework. Buying and letting a property is covered by a fair amount of legislation and tax rules; and in the last couple of years, the amount of regulation has increased, as has the amount of tax you're likely to pay. Letting a property can be profitable, but you need to do the maths first, and make sure you do everything by the book. Using a reputable letting agent, at least for your first tenant, should help avoid common pitfalls. There are a number of good websites on this subject. Note that the rules in England, Wales, Scotland and Northern Ireland are all different, so make sure that you get the right information! BLUF:  Continue renting, and work toward financial independence, you can always buy later if your situation changes. Owning the house you live in can be a poor investment.  It is totally dependent on the housing market where you live.  Do the math.  The rumors may have depressed the market to the point where the houses are cheaper to buy.  When you do the estimate, don't forget any homeowners association fees and periodic replacement of the roof, HVAC system and fencing, and money for repairs of plumbing and electrical systems.  Calculate all the replacements as cost over the average lifespan of each system.  And the repairs as an average yearly cost.  Additionally, consider that remodeling will be needful every 20 years or so. There are also intangibles between owning and renting that can tip the scales no matter what the numbers alone say.  Ownership comes with significant opportunity and maintenance costs and is by definition not liquid, but provides stability.  As long as you make your payments, and the government doesn't use imminent domain, you cannot be forced to move.  Renting gives you freedom from paying for maintenance and repairs on the house and the freedom to move with only a lease to break. "I would strongly consider renting; as homes are often viewed by people as ""investments"" but in reality they are costs, just like renting. The time-frame for return is so long, the interest rate structure in terms of your mortgage payments; if you buy, you must be prepared to and willing to stay at minimum 7-10 years; because anything can happen. Hot markets turn cold. Or stale, and just the closing costs will cause it be less advantageous to renting.  Before buying a property, ask yourself does it meet these 5 criteria:  IDEAL I - Income; the property will provide positive cash flow through renters.  D - Depreciation; tax savings.  E - Equity; building equity in the property- the best way is through interest only loans. There is NO reason to pay any principle on any property purchase. You do 5 year interest only loans; keep your payments low; and build equity over time as the property price rises. Look how much ""principle"" you actually pay down over the first 7 years on a 30 year mortgage. Virtually Nil.  A - Appreciation - The property will over time go up in value. Period. There is no need to pay any principle. Your Equity will come from this... time.  L - Leverage; As the property becomes more valuable; you will have equity stake, enabling you to get higher credit lines, lines of equity credit, to purchase more properties that are IDEA.  When you are RICH, MARRIED, and getting ready for a FAMILY, then buy your home and build it.  Until then, rent, it will keep your options open. It will keep your costs low. It will protect you from market downturns as leases are typically only 1 year at most. You will have freedom. You will not have to deal with repairs. A new Water Heater, AC unit, the list goes on and on. Focus on making money, and when you want to buy your first house. Buy a duplex; rent it out to two tenants, and make sure it's IDEAL."