choose any house to get in the market?

Question

Hi,

I wrote questions the otherday so I hope it is cool to keep asking questions. Anyway, we looked at 5 houses yesterday. In my gut there was something off but maybe i was scared or nervous to make the wrong choice? All homes was with in budget. After a year or two I may want to use the home as a short term rental but due to the county they are in they wouldn't be allowed unless I continued to live on property. Is it still worth to get any house that may work to just get in the market even if I just have to have a long term rental due to the regulations? They other issues were

1. didn't have a seperate entrance. I may be able to construct and entrance.

2. was 30 minutes from work and sons school.

3. had some sweat equity and pretty small with a tiny bathroom for us to live in. top of budget.

4. the neighborhoid wasn't exciting it felt kind of sketchy but had seperate entrance for airbnb. no are for storage for us and realy small for us to feel comfortable living.

where do I make sacrifices just to get in the market? Is there a way to forcast which homes will appreciate more? Do I wait for a house in a county where I can do a short term rental after moving?

My max budget there are very few houses so I know may need to ssacrifice to buy a place. Having a 10 year old neighborhood has to feel comfortable.

Patty

Nathan Gesner · Answer

It sounds like you're wanting to buy properties that don't meet your criteria just to get into the market. But making a mistake like that may result in bad performance which scares you out of the market. You mention a neighborhood that "felt kind of sketchy" but you want to put an AirBnB in it? Do you think vacationers want to rent in a sketchy neighborhood?I would sacrifice by increasing my savings and buying power, spending more time looking, learning how to find off-market deals and finance them creatively, etc. I would not lower my standards on the type of property I'm looking for.

Kayla Givens · Answer

Hey @Patty Nisbet! Echoing what others have shared here. I know the market is TOUGH right now, but I would highly suggest sticking with your criteria so that long-term, you have the right house to support your investment goals. If your goal is to do a short-term rental, make sure you're sticking to Unincorporated Adams County, Arvada, Centennial, or Wheat Ridge. It's ultra-competitive there but be patient and persistent and you'll get the right property soon!

Joe Villeneuve · Answer

1 - Don't buy a rental property based on a budget, unless that budget is based on the calculated cash flow and/or profit you can make, as long as the analysis done to arrive at those "calculations" were done with real numbers and not estimates. 2 - Don't make any sacrifices on a property you want to turn into a rental if the sacrifice you make will be a sacrifice to the renter. 3 - Don't take the attitude of "just getting into the market". Look at it this way. You will be making a commitment to be responsible for potentially $100k or more over the 10-30 years. If you were driving your car to an intersection, with your children in the back seat, and the the light is about to turn red, would you floor it without knowing where/if any cars were coming through that intersection from the sides, just because you "wanted to get into (through) that intersection"? 4 - If your plan is to live in the house before you turn it into a rental, buy the house based on the numbers that will make the rental work...without any rationalizations of what might happen in the future that will fix any reason that house won't work as a rental. Take the attitude you are buying a rental, that you will be temporarily using as your home....not that you are buying a home, that you will be turning into a rental. Everything you listed above should be telling you not to do it. Why aren't you listening to those words?

Michael J. · Answer

You are looking to purchase a personal residence and possibly use it down the road as an investment property? Based on the limited info provided, if you absolutely want to purchase one of the houses listed, 2 would be the one to go with. Im assuming the house hit all the criteria you wanted, its just 30 min from work and school?

Patty Nisbet · Answer

@Joe Villeneuve Thank you for breaking that down! That was helpful to read. I really appreciate #4 that is a good way to look at it. I keep reading about the calculators but can't figure out the right one for house hacking. My ultimate goal is to buy a house and rent either the basement or a room that could have a seperate entrance as a STR. Eventually, buy another house after a couple years and rent the first house as an STR and do it over again. Although, there are limited areas around Denver that allows that so not sure how quickly that will happen with the competition. Do you have a calculator you suggest? Patty

Joe Villeneuve · Answer

Yes. Cash out of pocket/Annual projected cash flow = # of years it will take to break even. Do it twice:1A - Start with how much cash you spent at the start / annual CF while you're living there. (Use this ONLY if you have positive CF while living there. If negative CF, then use 1B instead).1B - If you have negative CF, then take the cash spent at the start + (# of years you will be living there x annual negative CF while you're living there).2A: (Goes with 1A) - How much cash you spent at the start - (annual CF x # of years you will live there) Annual CF per year when you're not living there 2B: (Goes with 1B) - $ #### from 1B annual CF during the years when you're not living thereThe answers to the above equations gives you how many years it will take you before you get your cash (what you actually paid for the property) back, and then start making a profit.