Needing Guidance For First Property/House-Hack

[Wyatt Nauman]

Hi BP! Here's my situation: 

My family has about $250-$300K that we recently acquired through a relative unfortunately passing away. We want to put a good chunk of that to use via real estate investing, so I will be house hacking a small multifamily or perhaps a single family with zoning for an ADU.

Thinking the Denver / Boulder / nearby areas because I would love to live around there, have lots of friends around that area - including my real estate agent who I'm good friends with, and its an appreciating market. 

My family and I currently live in a small podunk town in Iowa, which I truly can't wait to move from, and we rarely come across money like this (we're basically as middle as middle-class can get). My parents are putting me in charge of the entire investing process because they're too far retired to want to deal with it, so naturally I want to make sure I'm making the best decision for all of us. 

Cash flow is hard to come by in the Boulder / Denver markets and although the extra monthly cash flow would be great, and there's plenty of places in Iowa that will cash flow, I'm wanting to scale quickly and feel Colorado would be a decent place for that. 

To get a solid foundation for myself I'd like to buy at least 1 property to house hack in Colorado each year with a 5% down payment for the next 2-3 years. After that I plan to focus more on cash-flowing markets out of state. 

So, do you have any advice for a first-time house-hacker wishing to jump into the appreciating deep end and swim with the sharks? 
Is it more advantageous for me to do this in Colorado? Or should I stay in Iowa and aim at buying cheaper cash-flowing properties?

Appreciate any guidance! Thank you BP Fam!!! 

[Eric DeNardo]

@Wyatt Nauman,

My condolences to you and your family for the passing of a family member. I like how you’re interested in using that money to invest and grow it! 

For your first house hack, I would look for something more “turnkey” where it’s set up for you to live in and ready to be rented when you move in, maybe a little of work. I would also explore the different rental strategies- long-term, medium-term, short-term, or rent-by-the-room.

I’d be happy to chat some more and dive deeper into how to get started!

[James Carlson]

Denver's such an awesome city. So many different little neighborhoods of residential that surround bars and restaurants and shops. And house-hacking is the quickest way to build wealth in real estate from scratch.

At the risk of sounding like an agent angling for your business, I would offer a word of caution using your friend, unless he or she really knows the nuances of what you're looking to do. 

For instance, a lot of our house-hacking clients in Denver or Colorado Springs want a home with a basement apartment. Well, in the Springs, I just had a situation where the permits weren't closed for the basement work and it turns out the city was about to tell the sellers to pull out everything.

In Denver, if you want to do Airbnb in your basement apartment, the city has been cracking down on STR licenses if they don't see a permit for the work. Also in Denver, you can live in one side of a duplex and rent the other, but not as an STR. (Whereas in Colorado Springs you can do that.) Lots of little nuances.

Then there's all sorts of issues you can run into with zoning as well. Sure, it may be zoned for an ADU, but does it have the lot size to accommodate an ADU to meet the setback requirements?

Regardless of the house-hacking issues, mixing business with pleasure is often fraught with peril. It's the biggest financial decision you'll ever make. You want someone who's been in the business for years, working full time specializing in what you're seeking to do, because if anything goes wrong with the transaction or the house after closing, it can create friction if you think your friend didn't protect your interests. If you're worried about hurting your friend's feelings, offer to have him refer you out to another agent and he'll get 25% of that commission.

Anyway, enough of my pessimistic soap box. I think it's awesome what you're doing. It's a great way to set yourself up for future wealth, and putting this inheritance into a great investment is a wonderful way to honor them. Good luck. 

[Brian Bohrer]

Hey @Wyatt Nauman,

I think you have the right idea and investing in real estate anywhere is a great plan!  I don't know if you mentioned anything about your current career or if you would have a job lined up upon moving out to Colorado to pursue your house hacking dream.  I would caution and encourage you to look into the general cost of living difference from where you currently live and where you are looking to move.  

When we arrived from Nebraska, we were quite shocked in the difference in costs relating to fuel, groceries, services and night life. I understand that you are attracted to the Denver and Boulder area and I would be curious to know if you have planned for the additional costs of living in these areas including the large(r) mortgage payment you may be taking on when financing 95% of the purchase price?

My wife and I have the same strategy of buying a primary residence every year and then renting it out when we move to the next home. We moved to Colorado Springs from central Nebraska in May of 2022 and bought a home to house hack by renting out the basement as a STR. The issues I ran into was the local market was already flooded with STR's and in order to be profitable you had to stand out with a home that was either near an attraction (ie great view, Garden of the Gods, Downtown, or a College) or the unit had to have amenities (Hot tub, Instagram Wall, Pickle Ball Court) that would place your listing far and above other similar listings.

I think you should strongly consider if you more interested in moving away and starting a life somewhere else, or in creating a cash flowing investment to supplement your income?  We kept our house in Nebraska when we moved and were cash flowing over $600 per month.  In comparison, we moved out of our first Colorado Springs home in November 23' and we are just barely breaking even as a LTR.  Yes, there is potential for more equity growth here in the Springs compared to the Midwest.  But, the fact is that our home has been declining in value since we purchased in May of 2022 because we bought during the "Covid Bump", and the market has been depressed for the past 2 years.  The market very well could continue on this path until we see substantial changes in local wage growth or a decline in interest rates.  So do not expect appreciation to be your savior, the facts remain that this market will bounce back and will appreciate more than the Midwest, but can you carry the debt for that long until it does?

So in conclusion, I would heavily weigh your desire to move from the area and your desire to turn a profit in an area that you already have some market knowledge of.  Also, who is to say you can't find a steadily appreciating multifamily in your area to buy and then use that income to help you move out to the front range and begin your real estate education out here?   Or maybe you can use some money to buy real estate locally and use the rest to buy your house hack in Colorado.

Lastly, if you do have your heart set on moving out to the area, the absolute best way to by ANY primary residence in ANY local market is to look for homes with an assumable FHA or VA loan! My wife and I bought our most recent primary residence in this manner and locked in a 3% rate on our loan in an (at that time) 8% interest rate market! I feel this is the ONLY way you can buy real estate that will rent for more than the mortgage payment once you move out in a year. I have a blog post you can read here (www.biggerpockets.com/forums/922/topics/1175338-maximizing-w...) that dives into the advantages of combining house hacking and assumable mortgages.

I wish you the best on your journey and would be happy to answer any questions you may have!  Good luck Wyatt and take care :)

Brian Bohrer

[Wale Lawal]

@Wyatt Nauman

House hacking in Colorado provides benefits such as appreciation, personal networking, and lifestyle. However, it might be difficult to discover houses with solid cash flow in high-appreciation areas. Investing in Iowa provides superior cash flow, reduced entrance expenses, and knowledge of the local market. However, Iowa markets have slower appreciation rates and may not be as appealing or gratifying for property management. Consider dividing investments between Colorado and Iowa, using low-down payment alternatives, and looking for properties that include ADUs or multifamily residences. Consult with a financial professional and continue to analyze both markets. The next stages are to find properties, run figures, get pre-approval for financing, and network with local real estate investors. Balancing both can bring stability and a consistent income.

Good luck!