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Updated almost 6 years ago, 03/06/2019
Newbie Renting in expensive area; Investing elsewhere first wise?
Hi I'm brand new to Bigger Pockets, and real estate investing in general. I've been trying to absorb as much information as possible and I am currently listening to David Greene's book on long distance investing. I live and work in the Boulder area as an engineer, and I know that in my industry I am limited to living in areas where rents and demand are high. I'm wondering: does it make sense to continue to rent and purchase my first real estate investment in a different market, where the prices are reasonable, or should I be saving for my own primary residence first, and then continue to save for out of state investments? I'm sure this is highly dependent on the market; I'm just looking for some rules of thumb, advice, or generally other factors I haven't thought about. It just seems unlikely that I will be able to purchase a duplex or triplex for the very high prices in Boulder or Louisville, Colorado as my first property (so that I could take advantage of house hacking), and it seems like trying to save for a second property will also be unlikely. However, with the rental increases (almost 10% per year), it seems ridiculous to be paying rent while also trying to start seriously real estate investing. Doe anyone have any thoughts on this dilemma?
Welcome to BP!
Hi Virginia, welcome to BP.
The question of to buy here now or there now and here later is based on many factors including your risk tolerance.
It may be nice to get a rental elsewhere that can help pay the bills and cashflow quickly. It can also be nice to house hack and your investment might not cashflow but you maybe paying out less in your monthly expenses so the bottom line is still positively affected.
You will also have the advantage of less required to put down if it is your primary residence. There are loans for 3% down or even less where with a rental you usually need 25% down.
Buying elsewhere can be difficult to manage and it might be challenging to find a lender depending on the size of the deal.
There are some nice less expensive neighborhoods near Boulder that might work for you as a lower entry cost where you can still house hack and not have a high mortgage.
- Real Estate Agent
- Denver CO | Colorado Springs, CO
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First off, love to see a woman in engineering. (More women in a lot of male-dominated fields -- engineering, real estate investing, politics -- is a good thing.)
I would just reiterate some of the above ideas about house-hacking. Everyone needs a place to live, so I always urge our Denver and Colorado Springs wannabe investors to buy a primary residence as their first "investment." Takes less money down and if you house-hack, it can teach you about being a landlord without having to do so from afar. And a lot of people see their mortgage covered fully and/or actually make money with this strategy.
I know some women might be leery of seeking roommates on a tenant market filled with single dudes. What about a townhome with an extra room or two that you rent to traveling nurses (mostly women). You can get more per month than a traditional long-term rental, and they're generally responsible people.
Anyway, you're in a good spot, asking questions here and gathering info. I wish you luck.
@James Carlson, @Kevin Grinstead
Thank you both for replying so quickly! It sounds like I need to spend some time learning more about the Boulder/Denver area from a real estate perspective. I enjoy living close to work, but it sounds like there are possible house hacks if I'm willing to commute longer or take a different approach. I will spend some time figuring out what is most important to me, learn some more about what makes a good deal, and then try to find something in this area (probably with an agent) to do a house hack. Thank you for the help!
- Real Estate Agent
- Denver CO | Colorado Springs, CO
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Originally posted by @Virginia Schilling:
@James Carlson, @Kevin Grinstead
Thank you both for replying so quickly! It sounds like I need to spend some time learning more about the Boulder/Denver area from a real estate perspective. I enjoy living close to work, but it sounds like there are possible house hacks if I'm willing to commute longer or take a different approach. I will spend some time figuring out what is most important to me, learn some more about what makes a good deal, and then try to find something in this area (probably with an agent) to do a house hack. Thank you for the help!
Sounds like a plan, Virginia. Good luck!
@Virginia Schilling I apologize for the delay. I'm a bit behind in my reading. I have a few thoughts. You might want to read Scott Trench's book "Set for Life". That books has the best wisdom and insight for young people in your situation that I have ever heard.
I have It really doesn't make sense to commute a long distance to work in most cases so I vote against buying a duplex in Denver because you can "afford" it. You didn't mention where you work but have you thought of looking North. I know some folks that have found the Longmont and Loveland more affordable without the huge commute that you would have from the Denver metro area. Right now the house hack that seems to work best (most affordable in this market) is a house with lots of bedrooms. Keep in mind that many housing laws exempt those renting rooms from discrimination charges (you could legally rent only to women for example). Keep an open mind.
x2 on Longmont. Even Erie, Lafayette or Louisville. "Plexes" are overpriced right now. Just get a SFR or townhome. Then house hack it.
My job is closer to Louisville, which is why I thought Denver or somewhere along the Boulder-Denver corridor would be better than somewhere north like Loveland.
@Matt M. I did notice that duplexes were ridiculously high-priced (and I'm not even knowledgeable about real estate yet). I suppose I will have to expand my search to Longmont and beyond.
@Bill S. you bring up a good point: more rooms equals more opportunity for renters. And I didn't know about the housing laws. I will have to do research into the specific laws in whatever county I end up in (I know Boulder has a "no more than 3 unrelated people per house" law)
I know this is probably market and personal preference dependent, but would you rather buy a 2-3 bedroom condo in Louisville or Broomfield and rent out the other bedrooms, or to buy a 4-6 bedroom house further away and do the same? I would think you would have more choices for renters in the Boulder-Denver area, but maybe that is just my ignorance?
@Virginia Schilling House hack before investing out of state.
Below is a snippet from one of my blogs on some rules for renting out to tenants:
Should give you enough to start researching! I'm not a property manager, so definitely do your own due diligence and consult with an appropriate professional.
Hi @Virginia Schilling, I used to live in Denver and did house hack for a couple of years and it helped a ton. I agree with what others have shared and it can be a great way to build equity. I think there are several ways to flush out the scenario. Boulder is pricey but with the UC-Boulder and job market - it's an area where the values have continued to go up. I used to live in Broomfield and some of my neighbors used to commute to Boulder and another option is Golden.
You have a lot of options and you are in the driver's seat!
Good luck!
Matthew
@Virginia Schilling do some learning on Condos. Generally speaking, condos are problematic due to HOAs. Some HOAs don't allow rental units so you can't move out and rent the other room. HOA fees reduce the amount of the loan you can afford. HOA make rules that you have no control over.
At the very least, READ and understand the HOA documents before buying.
I would reiterate the Set for Life book.
To add a little local color ... looking north toward Longmont, Erie, etc can be a good idea ... however the morning commute from Longmont area toward Boulder (and evening commute from Boulder to Longmont) can be brutal esp on the Diagonal highway, for instance. If considering living north, recommend researching (and actually driving your future commute at your commute time) in advance. Just something to consider. If you work in Louisville and live in Erie you might be able to commute on back roads, but again do your commute research in advance, could impact your lifestyle.
@Virginia Schilling there are lots of people who work in Boulder, but invest on the outskirts. As far as house hacking goes there are some options that come up along the 36 corridor or northern I-25 in Thornton, Westminster and Northglenn. Erie I would say is almost never worth it in terms of a house that will work for a hack. The only things that come up here are good for hacks for people who just want to offset expenses, but that won't make sense as a full rental down the road.
- Dan Mackin
- 720-466-3378
@Bill S. I did not realize some HOAs wouldn't allow you to rent. That seems silly as the only reason to buy a condo (to me) seems to be to rent it out later. I will definitely be careful if I go that direction. I also just bought Set for Life, and plan on reading that this week. Thanks for the suggestion!
@Matthew Cyriac I hadn't really thought of looking south since I don't enjoy driving on 93, but I will have to take a look. I know Golden and Arvada are a little better in terms of price, but I don't know if they would be good rentals?
@Jesse Daun that is my biggest issue with this entire search. I am used to living within 10-20 minutes from work, and I don't particularly want to drive forever to get to work, but I also don't yet have the money to pay $600K for a townhouse. For context, I have a couple coworkers that live in Berthoud and commute 50 minutes to work. So I would definitely want to stay south of there.
@Dan Mackin thanks for the tip. I will try to steer clear of Erie then. I don't really know much about any area here other than Boulder county. Is there somewhere I could get information about the various neighborhoods, or do I need to get an Agent for that kind of info?
Originally posted by @Jesse Daun:
To add a little local color ... looking north toward Longmont, Erie, etc can be a good idea ... however the morning commute from Longmont area toward Boulder (and evening commute from Boulder to Longmont) can be brutal esp on the Diagonal highway, for instance. If considering living north, recommend researching (and actually driving your future commute at your commute time) in advance. Just something to consider. If you work in Louisville and live in Erie you might be able to commute on back roads, but again do your commute research in advance, could impact your lifestyle.
I was wondering about traffic on the diagonal. What about the backroad into Lyons?