House hacking: upper versus lower end of my budget?

Question

Hello Everyone, I’m new to Bigger Pockets and looking to start my first house hack later this year in the Boston area, which is a tough market. I’m in a position where I can either aim to buy closer to Boston at the low end of an excellent area (at the top end of my budget) or I can buy in a reasonable area (North of Boston) in the middle of my budget. From the numbers, both areas typically won’t cash-flow positively at first given my down payment, but it really depends on the specific property. I think aiming for the middle of my budget makes more sense, but is there an advantage to buying in an excellent area at the top of my budget?

Dan K. · Answer

I would tend to agree with @Stephanie Potter -- Worst house on the best block.As others have said, you don't want to be totally at the max budget wise. If a unit needs a new toilet, garbage disposal, painting, roof, boiler, etc., you don't want to sweat it.As you get closer to Boston appreciation has to enter the equation versus consistent, reliable cash flow. That being said, I wouldn't bank on appreciation -- there are plenty of A+ apartments coming online in Boston.I tend to like areas where people want to live versus have to live. Finding new tenants, management and justifying improvements is also easier in an area closer to the city.Finally, if you self-manage, who do you think you'd do best managing? "Young professionals," grad students, established professionals and families all have different priorities and concerns.

Dan Smith · Answer

@Christopher C. Evans - Welcome to BP :) I would second the thought of not stretching yourself too thin. When I bought my first 3-fam, I was able to buy something decent in a decent neighborhood of Haverhill as well, certainly below the budget that we could have made. With that I was able to give it all new windows, renovations to two of the units, and new heating/hot water systems to the whole house. I likely built a ton of equity into the house with that and it's also allowed me to have plenty of cashflow as the house hasn't needed a ton of work since then, (considering it was all addressed in my reno's).Literally a month before I had the heating systems scheduled to be replaced, one of them died (during Winter nonetheless). Luckily we were able to push the contractors time frame up and get them all replaced, but I don't know what I would have done if that work needed to be done and all of my money was tied up in my mortgage.

Steve DellaPelle · Answer

@Christopher C. Evans I grew up right down the street from Reading, MA and I house hack a 4-family in Haverhill (North of Boston). If you have any questions definitely reach out!

Matt K. · Answer

I don't know your area... but I'd avoid three things....1) don't max your budget, you're a homeowner and things will come up at the worst possible time. Make sure you can afford to fix something like say water heater or AC.....and have a unexpected vacancy at the same time. When it rains it pours, but if your ready it won't be bad. Likewise don't get caught up in cash flow/appreciation game. House hacking is meant to REDUCE your living expenses... if it does that good. Most places won't cash flow with 3-5% down because most investments require 20-25% down... plus an extra 200 mo shouldn't be deal breaker, you can make that up elsewhere.2) don't buy the nicest house on the block/area. That does nothing for you and you really don't have much growth. Look for what's in demand and go from there. If everywhere is 3/2 don't by the 4/1 or the 2/2......... they probably don't don't fit the demand of that area.3) avoid any area that's main draw is it being cheap/affordable. If the best thing you can tell me about the area is that it's affordable... pass. What happens when it isn't, people leave.

Michael Pallotta · Answer

Hi @Christopher C. Evans, Yes it is a tough market to find good deals but they are out there. The competition in the market and on the specific home will help dictate what price range you will have to look in to have a strong offer. I would start off closer to the middle of your budget just in case there are any unforeseen costs you could have missed and to account for any issues that might arise during the process. It is great to invest but doesn't make sense to do it if you are struggling after the purchase. I guess if something was an unbelievable deal and location, you could shoot more for the top of your budget but definitely be careful with stretching yourself too thin. If you have any questions about the local market or specific locations in the Greater Boston area, feel free to reach out.

Stephanie P. · Answer

@Christopher C. EvansSome folks say buying the worst house in the best neighborhood is the way to go and I agree. I believe a rising tide lifts all boats. I say go for closer to Boston. With millennials wanting to purchase closer to an urban core, you'll have buyers for years if you want to sell.This article I linked to differs with my opinion and it reads a little like one of my favorite books, Think like a Freak by Steven Levitt and Stephen Dubner. https://qz.com/340500/why-you-shouldnt-buy-the-wor...