Move to "cheaper" REI location or keep a higher salary?

Question

I currently live in Hawaii and am a few years out from getting started in REI (I'd like to save between $80-100k before getting started), but am taking this time to learn and educate myself on the ins and outs.  My goal is to become proficient in both flips and BRRR, and possibly vacation rentals as well.

Starting out in REI, if I stay in Hawaii I would be able to earn roughly $100-120k annually if I stay in my current line of work.  If I were to move to the mainland, this would likely fall to approximately $70-90k a year, so roughly a $30k difference.  However, living on the mainland would afford me more opportunities to get started and grow sooner (I think?) as well as the option to house hack, which doesn't seem very feasible in Hawaii as a new investor.  I would be going into this with essentially zero debt, good credit, and possibly access to a HELOC as my family's property is fully paid off, valued roughly between $800-900k.

So my questions are...

1) Given my general situation, is it better to keep the higher salary and stay in the more expensive market, or sacrifice some of that (~$30k) to take advantage of househacking/other opportunities in cheaper markets?

2) How much does access to the HELOC change/benefit my situation, and what would be the best way to leverage that starting out?

3) I know I can get started for less, but I prefer to take a more conservative route starting out, so is saving up $80-100k a wise goal or is this too passive, also considering question 1 where I have the option to move.

I have so many more questions but I'll just leave it at these for now.  I've learned quite a bit just browsing the forums and will continue to do so, so thank you all for your generosity in sharing your knowledge!

Derrick E. · Answer

@Andrew Olmstead I do not invest there so take this with a grain of salt, but from what I have read, Portland is one of the most liberal landlord/tenant cities I have heard of. I would not invest there for this reason alone. Best of luck in whatever you decide.

For what it's worth I agree that you should live wherever you want and invest wherever it makes sense to do so.

Duc Ong · Answer

@Kelly H.

1) I would go with the higher salary, because even in an expensive market like here, there are still deals.

2) The HELOC is your ticket to investing as soon as you are ready.  Of course, this depends on your risk tolerance, but leverage is what make RE much more powerful than other asset classes.

3) You don't need that much to get started.  Like Lane and Tony mentioned, there are deals that can be done for much less cash outlay.

As for the house-hack, that's probably one of the best methods for building wealth in HI if you are not flipping.  I know someone who is able to live for free by house-hacking a 3 unit.  Let me know if you would like to meet up for a coffee sometime!

Anthony Angotti · Answer

@Kelly H.

I think either situation can work. It mostly just depends if you want to invest locally or out of state. My guess is that you won't be able to buy anything that cash flows in HI

If you save much more money by moving then do that, but if it's not significant then live where you want and keep the higher salary. @Lane Kawaoka discussed that perfectly with his answer to your first question and I agree entirely.

2) After the first couple OOS deals (use those to buy places that need some work, but not extensive work) use the HELOC to buy at a discount and refinance as much out as you can. In my market full cash out deals have been a little bit harder to find if someone is OOS lately due to the popularity of the BRRRR method and the way that appraisals have been coming in. Not impossible, but if you can leave in less money than you'd otherwise have to pay on a downpayment that's still a win in my opinion.

3) I don't think that you need that much. At least in my market 8-10k in liquid reserves is good enough for one property. It's nice to have as much as possible obviously, but that amount covers most single events that would happen. Other larger cash outlays that you need immediately are usually events that happen and would be covered by insurance or are liability issues. They typical large expense can be covered by 8-10k though. Can be higher in extreme cases, but that's why you don't stretch your personal finances to the max.

Kelly H. · Answer

Thanks for the reply Lane,

I think you make a good point that I need to spend more time just crunching the raw numbers.

I guess my real question is what is the value of house hacking from a more qualitative approach, and is it worth the opportunity cost of $50-100k to gain that experience?  I look at it like investing in a college education for something I plan to be doing for the next 25-30 years, which I'm perfectly okay with if it's deemed worthwhile.

If I stay in Hawaii I'd definitely have more of a focus on flipping as it's pretty clear to me that cash flow is a tough thing to come by, but therein lies my dilemma that I'm not sure how comfortable I am starting off as a brand new investor jumping straight into flipping and remote investing off the bat, whereas starting with a house hack seems infinitely less risky.

I should also throw out this is all arbitrary at this point as I'm still in the process of paying off my remaining personal/student debt, so it's not like I could jump into investing right this moment.  More just trying to figure out a game plan and what my goals should be to get started.

Andrew Olmstead · Answer

Lane,

Great answers for Kelly.  Its very interesting to see that the cost of living in the mainland seems to be rising to Hawaii type levels (Seattle, SFO, Boston, etc)>

I have an unrelated question for you if you don't mind.  I would like to purchase real estate to give to my kids so looking for long term good cash flow.  Do you think a couple of rental houses (or condos) in Seattle/Portland would be a good way to go or one of those turnkey companies in like Jacksonville, Dallas, Memphis, etc.   Interested in very long term cash flow so if it bumps along at no cash flow the first few years but goes up a lot later that would be ok too.  I just think back to living in Seattle and Portland as a young guy and not buying because it didn't quite pencil or the price was off by a couple thousand,etc.

Move to "cheaper" REI location or keep a higher salary?

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