First House hack, more or less leverage?

Question

Hello! I’m finally ready to purchase my first house hack! I’m looking for properties in North Denver (Thornton, Westminster, Commerce city, etc). I plan to rent out the rooms to friends if I can instead of total strangers, however I know this could be problematic, and I plan to have their parents co-sign if they don’t have a 600 credit score. Just want to know what the potential dangers are and how to avoid them.

Also I’m finding in my market the home will likely not cash flow as a normal rental, so I plan to sell it before I purchase a second property. Is this a terrible idea, will I be taking a huge risk if the market falls? Ideally I’d like to be able to buy and hold multiple properties down the road. Any advice would be greatly appreciated!

Craig Curelop · Answer

@Dylan Eggers - I would stay away from Commerce City. As for renting by the room, this is the exact strategy that I use in the same exact areas.

I have total strangers living together in my properties and it works just fine. You just need to make sure to screen them properly and make sure they are clean, quiet, and respectful. Those are the three pillars I look for with a tenant.

As a normal rental, you will definitely lose cash flow when comparing to rent by the room. However, there are quite a few in the area that will still cash flow as a single family. That is a make or break investment criteria for me and the people that I work with. It needs to work for multiple strategies in case one of those goes away. In other words, it needs to work as rent by the room AND a full time rental.

Jesse Park · Answer

https://www.biggerpockets.com/...

Check the thread I started a few days ago with a lot of good information from excellent seasoned Denver investors.

I work in Park Hill and pass Commerce City daily. I would not want to live here. There is just so much pollution, and the smell will be unbearable.

Spencer Cornelia · Answer

@Dylan Eggers How much are you putting down?  What is the monthly payment?  How much rent will you get from each room?In my eyes, you use this property to rent out the rooms, save up as much money as you can, and then figure out what's next.  The goal of house hacks isn't necessarily to cash flow when you're looking to move out.  The goal is to spend the next couple of years massively reducing your monthly expenses, thus massively increasing your net income.  The cash saved over those few years will help you determine what's next in your real estate journey.

James Carlson · Answer

@Dylan Eggers

First off, congrats on jumping in. Analysis is good. Action is better. As some others have said, you can definitely find homes in the Denver metro area that will cash flow after you leave ... if you get creative. (For instance, check out a deal diary from one of our clients. It's not a true house hack because they bought it as an investment, but it shows what you can do with the rent-by-the-room/medium-term rental model.)

If you can get a house in Denver that cash flows even a little, I'd want to keep it. Long-term, Denver's got it going on. Proximity to the mountains, 300 days of sun, great beer, legal weed, bars, restaurants, arts. That quality of life has demographers estimating another 1 million people will live in the metro area by 2040. Where are they going to live? In your rental house!

Now if you need money to buy that second one, you could always take a HELOC out on it.

Steve K. · Answer

@Dylan Eggers I didn’t think my first house hack would make sense as a pure rental but rents increased enough during the time that I lived there that it did cash flow when I moved out (and appreciated nicely). Not saying that will be the case for you but choose wisely on the location and I don’t see why it won’t be. I think the key in this area is just to get started. Regarding Commerce City, I wouldn’t make blanket statements about the whole city anymore as parts are actually getting pretty nice (like all the new townhomes and condos by Dicks concert venue). But yeah the Suncor issue is unfortunate (although it doesn’t just effect CC depending on which way the wind is blowing). I like other areas better but CC isn’t as bad as it used to be. All the areas you mentioned have low school rankings which is a major thing holding them back (I mention Westminster to a lot of first time home buyers for example and they almost always reply, “Yeah, but the schools...”). Personally I’d look for a fixer in one of the neighborhoods within Denver that are gentrifying, like Barnum or Baker or somewhere like that. Probably better chance to increase rents and benefit from appreciation somewhere like that than the places you mentioned. Good luck!

Erin Spradlin · Answer

@Dylan Eggers - Commerce City has had insane returns the past 5 years (the house values had doubled) but in 2019, it seemed like the Suncor facility was making people sick, so I agree with Craig about avoiding that area. https://www.thedenverchannel.com/news/local-news/regulators-hit-suncor-energy-oil-refinery-in-commerce-city-with-over-100-air-pollution-violationsThat said, I love Thornton and Westminster. You see a lot of expensive businesses moving in there (Orange Theory, Whole Foods, etc.) which means the big companies think a certain demographic that can support those costs are coming in. I'd put 5% down for this, take on roommates, see how you like the experience and then re-evaluate in a year or two.

Jaron Walling · Answer

"I plan to have their parents co-sign if they don’t have a 600 credit score."

If I was a good friend and someone asked for this I'd never live with them. Friendship is built on trust and shared experiences. Point blank.

First House hack, more or less leverage?

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