What would you do in this situation?

Question

Hello BP community! My name is Andrew and I currently live in Colorado Springs CO. My wife and I bought our first home in Oct 2019 and have about 120k in equity. We want to sell our current home, buy a small multifamily house (2-4 units) and house hack. I have been talking with a real estate agent for about a month or two helping us look for a property and am currently waiting to hear back from a lender on how much we would qualify for. My wife and I are both active duty so we have a VA loan we can use.

After reading some forums, I see that the Springs area may not be the best area to do this type of house hack in. As discouraging as that sounds, I want to put in the work and run the numbers on properties I see to make sure there are no good deals out here. I am reaching out to you to ask what you would do in this situation and any advice you have.

Thanks in advance for all the help and I look forward to hearing your perspectives!

Jaron Walling · Answer

It only went up 28% year-over-year! That's not investor friendly... said no one ever. Buying anything multi-family in Colorado is smart. Find some problems and solve them. That's the only way to find deals right now.

Seth Wilcock · Answer

Hi @Andrew Delgado,

What's wrong with the Springs market?  Colorado Springs has been appreciating and growing at a record pace for a few years now.  Look at the snippet below for what happened in 2021.  I would definitely consider house hacking in Colorado Springs, especially on multi-family.  I'm curious to know what your concerns are before advising further.

Kyle Sheker · Answer

Episode 555 of the bigger pockets podcast talks about buying in expensive markets. I recommend this for you. David Greene does a good job of explaining the idea of "making a deal". @Joe Villeneuve I think is also touching on this. Find a deal with a "problem" that you're able to solve and perhaps you'll find a great opportunity. I'm not familiar with your specific market but am of the belief that most hot markets don't have the issue of "not enough deals", but "not enough creative solutions". I think the idea of a house hack is great, you might just have to get creative. Find a problem and solve it.

Side note, I have heard there's a lot of red tape around VA loans and it'll likely significantly reduce your options. With that said, you may want to consider deals without the VA loan as well.

Jeremy Gaal · Answer

Andrew,

Not sure where you are in the Springs but rents are appreciating pretty quickly. Tracking the apartment market it went up north of 10% over the last year and I hear increases up to 30% over the next few years. While I don't have a crystal ball to know this for certain, I know rents are certainly going up in the near term. All of this to say if you're out of pocket $100/month for a year you'll likely cashflow the next.

For context I have 3 rentals in the Springs and am seeing both strong appreciation and strong rent growth.

Travis Hall · Answer

I haven't ventured into the CO springs market for investing yet, but have house hacked 2 duplexes personally in the Denver area.  I love your idea, and agree that it will be difficult, but don't think it would be impossible at all. And I agree with most of the rest of the comments in that, if you can find a deal that works for you in the springs area, the crazy appreciation you will likely experience will simply be an incredible bonus!  I am not sure exactly what type of multi family you are looking at, but I will say that the more doors you buy (3 or 4) the more rent it will bring in and the better likelihood of making the numbers work.  You could always look outside the springs area toward Pueblo too.  Even if it was to house hack it for a year or two. Good luck!

Henry Clark · Answer

@Andrew Delgado

You have three tools most of us don’t have as investors, take advantage of them.

1.  Sell your house. Primary residence for 2 of 5 years, no tax on gain. Don’t keep it as an investment.  Use the equity to move up in investment size.

2.  How long are you stationed there?  Find out what your maximum BAH is for all housing costs.  You probably have $4,000 to $5,000 of free money from the federal government that most investors don’t have, counting both of you.

3.  Find other soldiers, preferably married soldiers and max out their BAH.   Make it worth it to them. Furnished, pool?, free ski lift tickets, season tickets for????, free washer drier, day care nearby.    For the same property that a normal investor total rent roll say $8,000 per month, you get $12,000.

When you finance understand your BAH goes with you.  Plan to refinance when you move, to a lower monthly payment.

Recommend after you move if the market works, sell and do a 1031 into either a larger unit or a more expensive property. You can’t 1031 US to a foreign country.  You can 1031 for U S tax purposes foreign to foreign.

Not Real estate: If you transfer overseas buy something big, heavy and expensive, have it shipped or delivered there for free as your moving cost.  $80,000 saltwater boat to the Phillpines.  Muscle car or Harleys to Japan or Korea, Hawaii.  Sell it there.  Do the reverse coming back.

In your next life move to Texas for a year before joining the military. Free college for you and your kids.

Main thing is join a military REI group or several all over the world.

Steve K. · Answer

@Andrew Delgado I would cash-out refi, use the money for a down payment on a duplex in the springs (a fixer-upper/ value add opportunity) build equity on that quickly in order to do it all again, and keep the current primary as a rental (if all that pencils out). Why wouldn’t the springs be a good market? That’s the place that gifted you all that equity in such a short time period. The main problem I see would be finding a multifamily there because there aren’t a lot of them, which is why I would be open to a duplex or even a house with a lock off basement/ ability to operate a house hack with some privacy.

Seth Wilcock · Answer

Hi @Andrew Delgado,

There's certainly nothing wrong with buying in an appreciating market.  In one of his recent YouTube videos/podcasts, David Greene stated that cash flow buys you time/freedom, but it's really the market appreciation that makes you wealthy.  Since this would be a house hack scenario, I don't think there would be any problem with purchasing a multi-family in Colorado Springs.  In fact, I think it would be a fantastic decision as you would be able to capitalize on future appreciation grains, and Co Springs is growing rapidly.  You could do this while having a large portion of your housing expense paid by tenants in the other units.  After enough time, you could move out of the MFH and rent out the final unit.  During that time, rents are sure to go up as well, especially during inflationary periods like the current environment we are experiencing.  Give it enough time, and you'll realize passive positive cash flow as well as appreciation.  You could (at the same time) look at investing in markets out of state as well if you're chasing cash flow, but I would definitely give Colorado Springs a look from a house hack perspective.

Andrew Delgado · Answer

@Ryan Thomson Thanks for the idea! Haven't put much thought into STR but now I'll look into!

Ryan Thomson · Answer

@Andrew Delgado I've done three house hacks in the Springs in the last 2.5 years. They all cashflow well. The great thing about the Springs is that it does well on STR on Airbnb. If you live in one unit you can airbnb all the others. This would do really well in a multifamily situation OR even one where you convert a walkout basement or a garage.

Even if you wanted to long-term rent the other unit, I find it hard to imagine you won't be covering a significant amount of your mortgage and growing your wealth with loan paydown and appreciation.

Another thought- you could pull out the cash with a cash out refinance, turn the current home into an investment property and buy a house hack with 5% down.

What would you do in this situation?

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