First deal- House hack or long distance invest?

Question

Hello everyone and happy new year! I have been listening to podcasts, reading books and accumulating as much knowledge as I can before taking a dive into real estate investing. I am ready to get my feet wet and need to get into action sooner than later. I live in Long Island, New York. My home market is relatively expensive to buy into. I am thinking of two options for my first investment: Option 1- buying a multi family and house hacking with an FHA loan for a year and and then renting all units out. Option 1 means purchasing in my higher cost market where an entry level house is around 400k (tying up a lot of my marbles at once). Also, i have no need to move out at this moment in my life. I am 24 and have no issues living with my parents for a little longer and saving the money. Option 2- investing further away. I would be able to get into something for a lot less, 100-200k depending on the market i chose. I would be able to put less money down, get my feet wet, and repeat the process the same way with the leftover money that I otherwise would have contributed to a down payment on a home in my home market. I can continue to live at home and have the whole investment devoted to cashflow versus breakeven with live-in for a year. The idea of investing long distance is scary for me. But I know that if i develop the right relationships and have boots on the ground i should be able to work it fine. The barrier to entry being a lot less than it would be in my home market is very appealing because I can continue that process over and over with small down payments. I feel that i have the knowledge I need to get started right now, and will only learn more by finally taking action and doing. I feel stuck where I am right now and could definitely use advice as to which route would be better for me to take. Thanks!

Abel Curiel · Answer

Good morning Eric,As @Andrew Johnson mentioned, this decision should be based on your personality and what you feel most comfortable handling, especially as a first investment. Its always good to begin with the end in mind. Most people I work with want to eventually hold a large rental portfolio. Most people who aspire to own 100+ units in their lifetime also consider having their own maintenance company, construction company and property management company.I enjoy working with early investors using the multi-family house-hacking strategy. I get to help them gain experience during the acquisition process to show them how deals get done from beginning to end. Once they're in, they gain hands-on property management experience. After all, if you want to eventually hire out for PM (or have an in-house PM company), you'll know what to expect from them since you've already done it yourself!Feel free to reach out with any questions & best of luck to you!-Abel

Eric Telese · Answer

@Andrew Johnson thanks for the advice. I feel that I am definitely a control type of person. But, I believe that scale-able businesses can only be built on the ability of trusting others. I am going to have to learn to give up some of the hands-on things because I am definitely leaning towards long distance investing. Now I just need to find the market that best suits my needs!

Andrew Johnson · Answer

@Eric Telese Unlike some others, I don't think there's a "bad" option here. Most of it would depend on your personality type. If you want to control everything you literally can't get more "in control" than sharing walls with your tenants. You'll know if they're too loud, they can't "duck you" when it comes to rent collection, you see the condition of the property every day, etc. Juxtapose that against out-of-area (state) investing and it's a stark contrast. Then you could give yourself an ulcer wondering about all of those things. Typically it's never going to be feasible to visit a long-distance property more than a couple of times a year. You run the risk of having a contractor do shoddy work. You run the risk of a bad property manager. And some of those risk you just have to accept (give up control) and that's part of long distance investing. Sure, you can set up "systems" and "checks and balances" but that takes time, there will likely be bumps along the way, so you still have to almost accept giving up some of that control. However, if you're like me and have zero interest in being a hands-on landlord so there's something a little bit freeing about investing out of state. I can't drive by the property every weekend. I have to focus on "big things" more than the cost of a lock change. I had to (to some degree) trust my property manager or it's just never going to work. Not that I chose to invest out of state BECAUSE of that but there are some mental advantages to it. Again, assuming you personality matches up with the strategy.

Brian Adzadi · Answer

@Eric TeleseSo there are pros and cons to whatever decision you make, it all depends which con are you willing to deal with more than the other. 1. If you buy in your area, automatically you have lost any potential to invest again anytime soon because your money will be tied up in that one property. However, you will be living in that property and any hiccups that occur, you will quickly be able to handle and keep your tenants happy. Do your research on how much the average rent goes for in that area of Long Island and the potential expenses you will be covering (Water, Heat, etc.) if the cash flow is decent in your eyes then maybe being close to home is better. 2. If you buy in another market like NJ, CT or PA. You will be further away from your property and not readily available to your tenants when anything pops up. That is what a property manager is for, they will be the ones your tenants will be calling in the middle of the night and handling the hiccups. You just write checks to them to cover the cost and another 10% of rental payment per month for maintenance. However, you will be cash flowing so well with these properties it may not even phase you. There are very decent Realtors and Property Managers in these other states that can help you acquire and maintain your property well. You just have to do your due diligence on them, BP has tons of advice in the blogs on what questions to ask Property Managers when vetting them. I may seem like I am leaning towards one side but reality is, its still on you and what you are MOST comfortable with. If you are risk adverse, house-hacking in LI is your best bet. If you are willing to go out and take a little risk but cash-flow awesomely, then out of state investing is your game. Happy Investing

Eric Telese · Answer

Thank you both for the advice. @Filipe Pereira what markets do you currently recommend in CT? I am looking for something under 150k for my first investment. Is this feasible in any CT markets or do I need to look further?

Filipe Pereira · Answer

Hi @Eric Telese, Brian made a lot of great points in his post above. I am a realtor and property manager here in Connecticut, and let me tell you, you are not the first New Yorker that has considered other nearby markets for many of the same reasons you mentioned. Like Brian mentioned, it's critical to have boots on the ground. If you have any questions about the CT market, or would like to chat regarding property management, give me a shout and I will do my best to answer any questions.