Moving in 12 months... Buy here or buy there?

Question

Hi!

My situation is somewhat unique. I plan to Move to Rhode Island in about 10-12 months. My girlfriend and I plan to get married and live in her home state of Rhode Island. I want to start investing but I'm not sure how to start.

My original plan was to house hack. Buy a 2-4 unit property in Rhode Island, keep a unit open and use that as my living space until my girlfriend and I can afford a single family house. I would also invest in St. Louis properties afterward because the property value is good- I can buy low and rent high.

My parents are suggesting I buy a property here in St. Louis and use that cash flow to buy a single-family home in Rhode Island. They would manage it once I move and I would still have an income from it so then the question becomes does it even make sense to think about investing in Rhode Island? Should I just focus on investing in St. Louis while I live in Rhode Island? Is it harder to buy property while you don't live in the location or is it better when you have a good team around you (my parents)?

My Parents know some people who can finance me for a St. Louis property (my current location) but the people might not finance for an out of state property. So that is another hangup that I would have to figure out soon. Thank you for your time!

Ben Leybovich · Answer

House Hacking is interesting topic, more so because there are 2 distinctly opposite intellectual angles one can take on this strategy. You could look at it from a stand-point of scarcity, in which case you are thinking like a pauper who cannot afford a roof over your head unless you do a hack. In this case you end up compressing your quality of life and living in a 4-plex, or something.

Another way of looking at it, though, is not to make compromises and aim to improve your quality of life. Buy an expensive property; a property you would actually love to live in - not simply be there because that's all you think you can afford.

Understand - you can afford anything as long as it makes money. So, if what you want is a big house with tile and granite everywhere and a pool in the back, with blue skies and palm trees, then don't be afraid of that! You want what you want and you won't be happy.

But, if you are not independently wealthy and can't simply stroke the check, what do you do? You realize that if it makes money, you can afford it! So - figure out how to position it to make money, and you're done.

That's what I do anyhow. Doing it as we speak :)

Steve K. · Answer

@Quinton Slay , I agree w/ @Billie Miller , look into the house hack of a duplex, tri or quad in STL for the next year.

You seem to be focused on using one financing source. Read more about house hacking here on BP.....folks nationwide are able to qualify for the FHA insured, 3.5% minimum downpayment, as long as you're owner occupied. There are many banks that do this, (not just your one source of (private? money?).

Because in your STL market, you can rent a unit(s) for about 1.5 to 2.0% of the purchase price, the tenants are paying 1.3 to 1.8 times the monthly cost if they had owned it themselves on a 30yr mortgage. This is how the other 1, 2, or 3 tenants make the cost of your unit "free" over the next year, as you're gaining experience and equity with them making monthly payments. (granted, living with your parents might be "free" too).

Did you read Billie's blog on her website (link at the bottom of her post above). She show's her own financial results of a duplex house-hack in Denver. Now, I believe, she's moved and rents the duplex for a nice cash flow "BRRRR" style. You could repeat that in the next 12 months.....then you own it, and move to RI.

Good Luck

Billie Miller · Answer

I think it wouldn't hurt to look in St. Louis. If you have an established team and deal flow, I think you should take advantage of it. Additionally, if you can find a multi-family unit in St. Louis to house hack in the year you have left, I think it would be wise to at least consider it.

House hacking is great for several reasons. It's a great way to get your feet wet in rental investing and in home ownership. You can get owner-occupied financing as well, which is the cheapest money you can get right now.

In most places right now, it's harder to find good deals than it is to find financing. So I would worry less about finding money than finding good rentals. It's easier to call around to banks than it is to go look at properties all the time!

Nathaniel Merriman · Answer

@Ben Leybovich  I cant agree more.  The why is so important!

Ben Leybovich · Answer

All I am saying is that you need to know why you are doing something in order to know how to apply the numbers :)

Ben Leybovich · Answer

What you must be cognizant of is that 99.99% of advice on BP is focused on mechanics, but it's the perspective that's key. The numbers and formulas exist to facilitate execution of the perspective, and most of them are not here. Be mindful of who you listen to :)

Patrick Kelly · Answer

Hi @Quinton Slay I actually live in MA, but work in Providence everyday and have looked in investing in this market as well. To touch on a something others have said, you could house hack in STL and in Providence. With the 1 year difference you could get an FHA loan for both properties. House hacking in Providence does have a distinct advantage where you will actually save money compared to someone who is only investing in the market. Providence has different tax rates for people who owner-occupy a multifamily in the city vs. people who are non-owner occupants. As of right now the real estate taxes on property in providence is owner-occupied rate $19.25 per $1,000 of assessed value and its non-owner-occupied rate is $33.10 per $1,000. Just something to keep in mind while you analyze deals

Nathaniel Merriman · Answer

@Quinton Slay St. Louis sounds like deals are pretty easy to come by.  Rhode Island is pretty difficult to find anything turn key, pretty much any property is going to need work for the numbers to work.

Where are you going to be in RI? There is a first time home buyer credit in providence and the surrounding area which gives you a 7k ish loan for a down payment that is forgiven after 2 years I think.

Billie Miller · Answer

Thanks for the shout out @Steve K.!

Quinton, I would still house hack if I had even if I had the option to live with my parents. Assuming that you can find a deal where you would live for free while living there and that would cash flow when you moved out.

Here's why:

• You can take advantage of owner-occupied financing. It's super cheap and you can only get it if you live in the house you're buying. Lock in a low rate before they start going up.
• If you're serious about investing in St. Louis even after you move to Rhode Island, house hacking would be a great way to learn how to manage a rental property and to build your team.
• When you move out, you not only have an additional rental unit, but you will have cash flow! You can use this cash flow to help you qualify for another mortgage if you want to buy in Rhode Island.

If you're not house hacking a rental in St. Louis (strictly buying as an investment property), you're financing won't be nearly as good as owner occupied. You'll probably be looking at at least 5% interest, less than 30 years amortization, and possibly an adjustable rate loan.

In regards to your question about debt while collecting rental properties. I can't totally answer that, we only have the 1 duplex and our personal residence. However, we when we moved out of our house-hack, we were able to use the rental income from the duplex to qualify for our next mortgage.

When you start buying more rentals, you won't be using the same mortgage lender that you use to buy your owner-occupied house hack. You'll prly have to call around to local banks and find one that has a loan you can use. It'll take several calls, but you can find banks that will loan based on the deal and not based on your personal financial situation.

We're looking at buying turn-key in KC right now and just called as many banks there as it took to find someone who would loan to based on the property we wanted to buy. It took an afternoon of time, but wasn't super difficult.

If you have questions about analyzing a deal as a house hack let me know! It can get confusing sometimes, because you're simultaneously analyzing it as a rental but also trying to decide if it makes financial sense for you personally.

Ben Dao · Answer

I am not sure about the Rhode Island market. But if you got a 2-4 Family in the right St. Louis area,  you should be able to get decent cash flow. You might want to use that to offset your Rhode Island housing cost. Plus you have family helping you manage.

Moving in 12 months... Buy here or buy there?

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