House Hacking in state or Section 8 out of state?

Question

I am brand new to real estate investing but I want to invest in my first property this year. I am based in Houston TX.  I am looking to buy a quadruplex and house hack for the first year, here in Houston using MTR strategy renting to travel nurses. But my challenge is,  from my research so far I am not seeing any properties that make sense or are close to hospitals, or are very expensive if there are any. I know I can invest out of state but I am ready not ready to house hack in another state at the moment since I have a family.

Another strategy I am looking into is section 8 investing. What would you advice, should I go ahead and start out of state investing with section 8 why I continue to pay rent or patiently wait till I find a property in Houston to house hack (This will take some time away from my goal of investing in a certain number of units this year).

Please share your opinion.

Thanks

Mike Paolucci · Answer

OOS investing is the route I ultimately chose for similar reasons. It was really tough to find property where the numbers made sense in the bay area. I ended up choosing Ohio as my target market and more specifically Columbus. Dayton, Cleveland and other cities are great as well.

I have both Section 8 and non S8 tenants in my rentals. S8 comes with it's own set of rules but if you have a good property manager, they'll be able to help you navigate those waters and make sure the property is up to S8 standards but the cashflow has been awesome.

Let me know if you have any questions.

Michael Smythe · Answer

@Andy Oshodi

Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

When investing in areas they don’t really know, investors should research the different property Class submarkets. If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

Our OPINION for the Metro Detroit market (always verify each area for yourself!):

Class A Properties:
Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% the more recent norm.
Tenant Pool: Majority will have FICO scores of 680+, zero evictions in last 7 years.

Class B Properties:
Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
Tenant Pool: Majority will have FICO scores of 620-680, some blemishes, but should have no evictions in last 5 years

Class C Properties:
Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
Tenant Pool: majority will have FICO scores of 560-620, many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

Class D Properties:
Cashflow vs Appreciation: Typically, all cashflow with zero or negative relative rent & value appreciation
Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
Tenant Pool: majority will have FICO scores under 560, little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

Travis Biziorek · Answer

It really depends on how much capital you're working with.

Chances are, unless you're going out of state and doing some work to force equity, you aren't cash flowing with 20-25% down.

That's just not the environment we're in.

If you have the capital to buy cash, do some renovation, and then do a cash out refinance, there are options out there.

I live in California but invested out of state to build up my cash flow. Now I'm doing a mix of investing for appreciation while still adding cash flowing investments.

James Wise · Answer

House hacking was how I got started back in 09. $200 million worth of deals later, I am very happy with my decision to house hack that 1st house back in 2009.

Calvin Graves · Answer

As an asset manager for a few voucher-funded properties, I'd be cautious about doing that at a distance.

First thing is that you will have to pay more for a property manager who is competent with voucher recertifications, inspections, and is actually comfortable working with that population. Not that being out of state affects the cost in that regard, but you may find it more difficult to properly vet a manager, especially when it comes to their attitude toward residents who may need more flexibility, compassion, and patience than in a market rate building.

Second, and bigger, issue is that HQS inspections are a very real thing. I don't know Section 8 inspection regimen specifically, but my vouchered properties require a full building inspection every other year, and certain vouchers require HQS every new lease up. It's very easy to fail the biannual inspections because they're looking in occupied units, often with unreported maintenance issues. With enough units, this results in a bit of a project. If your property manager isn't on top of it, you'll fail re-inspection, too. If you keep failing inspections... well, there are plenty of landlords happy to take HUD's checks instead of running credit reports.

My advice if you do Section 8 anywhere is to hire a property manager who is genuinely comfortable and experienced with vouchered housing. Not just the residents and paperwork, but also comfortable developing relationships with the agencies and case managers who work with the residents. That personal relationship results in a lot more flexibility on various issues, and ample notice of inspections.

Jay Thomas · Answer

Hey there, partner! Figuring out whether to go for out-of-state Section 8 or Houston house hacking depends on what you're comfortable with. Out-of-state Section 8 might bring in more money quickly and could be less competitive, but it also comes with risks like not knowing the market well and less control over your property. Houston house hacking lets you be hands-on, live in your investment, and know your local area, but it might not make as much money and can be a bit competitive. Think about whether you're okay with managing properties from afar, dealing with unfamiliar places, giving up some control for more money, and if you have enough time for Houston house hacking along with your regular job and family. Remember, there's no one right answer. Take your time, think about what feels right for you, and maybe chat with a money expert for some personalized advice.

House Hacking in state or Section 8 out of state?

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