How do you house hack in an area as expensive as Long Island?

Question

Hi all,

My husband and I are one month away from being debt free and will be in a good position to jump into RE.

One issue we’re having is the simple question of how to actually pull it off. We’re in Long Island and the average one family house price is $400-$450k with $12-15k/yr in property taxes. Utilities are higher, PMI is a thing, we have low reserves but excellent credit and income around $12k take home/month between both of us.

Second issue. We are simultaneously looking for our first house. Do we buy a primary home for us and then a second investment property after? Or house hack the first house and sacrifice a few years? We’re in our early thirties with a 2 year old and dog. Having a back yard and home for them is important to us and we aren’t sure we want our daughter to share close living spaces with strangers.

So....is it a poor area to house hack? Should we be doing this out of state like the Poconos? So confused.

Thanks in advance.

Jaysen Medhurst · Answer

I would think about the garage for your husband's business separately and as an investment of it's own, @Kiersten James. If he needs 3 bays, for example, look for a stand-alone property with 6 bays and rent out the other 3. Something like this, this, or this.

Theresa Harris · Answer

Unless you are a single person, or a couple, using a single room and renting out a number of rooms in your house, it is rare to cash flow.  Look at it this way...at least the rent would pay for your property taxes.  That is one less thing to worry about.

Kiersten James · Answer

@Jaysen Medhurst thanks for the info. Yes, we would never hack with someone actually in our own home. We are looking for a house with a separate entrance single occupancy accessory apartment but as stated above, the rent will only cover our taxes and never cash flow for us. We also are in a weird position where we need more of a “permanent” primary residence because we have lots of heavy equipment due to the nature of my husbands business. We will need to build a large garage to house it on the property. Lots to think about. Thanks!

Kiersten James · Answer

@Theresa Harris see above. It’s going to be a tough call to make for sure!

Kiersten James · Answer

@Nathan G. That’s what we were thinking. We were going to try to find a house with a single occupancy separate entrance accessory apartment. The down side is that the rent we could get (~$1200) will literally only cover the property taxes. It’s nice to have a bit of help but I wouldn’t exactly call that cash flow.

Jaysen Medhurst · Answer

If you're tied to LI by jobs and/or family, then moving just to find less expensive RE is probably a bad idea, @Kiersten James. As the saying goes, "Live where you want to life, invest where the numbers make sense." Sure the properties are less expensive in the Poconos, but will you have the same earning power and quality of life?

If you want/need to stay in LI, look for MFR properties where you can rent out the other units. In many parts of LI, you won't be able to cash flow, but by lowering your living expenses, building equity, and gaining experience as a land lord, you'll be moving in the right direction.

I don't think house hacking a SFH is an option for you. I share your concerns as a parent and from the other side, who would want to live in the same house as an unrelated 2-year-old?

Theresa Harris · Answer

If you can find a place with a suite or duplex, that is your best bet for getting starting.  You still have your own space and privacy (plus others may not want to live with a 2 year old).  Buy it knowing you will only live there for a couple years and then move to your more permanent home and then rent it out in full.  this lets you get in with less money down and get into real estate.

With a net income of $12K per month and no debt, you should be able to save money quickly for your down payment and qualify for a $400K mortgage.

Nathan Gesner · Answer

Personally, I think you are better off trying to house hack. This provides you a place to live and an investment at the same time with a low cost of entry. You can do it a couple times and get 4-8 rentals under your belt before moving to your own private residence.

Personally, I wouldn't recommend investing in an area like Long Island. It's expensive to get started and it's a difficult place to cut your teeth due to laws that tend to favor tenants over landlords. If you're ever in a pickle, it could potentially destroy your investment trying to straighten things out.

You're young. This may be a great opportunity to save up as much as possible and move to a more affordable, landlord-friendly state.