Dilemmas navigating house-hacking in an expensive market (NOVA)?

[Mokhtar Awad]

I've been lurking here for quite a bit and am appreciative of all the information. 

I almost pulled the trigger on a townhouse in the NOVA area today for a house-hack, but pulled back as I felt I needed to research some more to be smart about my decisions. My goal is to get at least one rental property in the next 1-2 years and build from there.

The challenge has been living in northern Virginia. I now have cheap rent living in a large basement I'm comfortable in, but since that's unsustainable (owner may sell or rent in the next year or two), I contemplated house-hacking. The tax benefits could also be beneficial for my filing status. However, I don't want to make the biggest purchase of my life just because of tax benefits or to "stop throwing away rent money."

I'm willing to make sacrifices to live in even smaller basements in this area to be able to house-hack (no duplexes, etc. here). The hope is that this ends up being the training wheels I need to be more proactive with investing. One consistent challenge I've faced is that figuring out reliable rent comps for individual rooms I'd be renting out hasn't been easy for me. As a current basement dweller and someone who slept in a converted living room for years in the NOVA area, I have somewhat of an idea about room rents in the area, but I've realized that there's a lot of discrepancy in advertised rents on Craigslist without a way for me to have a reliable indicator of how much rent my property/room configuration could get to calculate if house-hacking would be beneficial. Most advertised rents are also utilities included to be competitive, so I'd most likely end up paying the utility usage of 2 or so adults, not including me. 

But most importantly, if I'm able to get past the room-rent comps issue, the bigger dilemma that's holding me back is that the properties here have a high price-to-rent ratio for whenever I look to turn the house-hack into a rental. Even with the low interest rates I can get now, actual rent comps for the area I'm looking at would barely cover the mortgage and best case scenario there's a $100 or so positive cash flow. I'd also need to use a property manager at that time and account for that cost.  Other similar properties get better rent, but they're completely renovated and have at least one more bathroom, something which I'm not comfortable tying up cash in (assuming I can end up affording the work). 

Which leads me to my final challenge: just how much cash gets tied up in the beginning. To close on a ~400K property it looks like it'll be 32K with a 5% down payment and a PMI buyout. More cash would then need to be spent for any cosmetic changes and furnishing the place to attract tenants.

All of this has led me to think that out of state investing might be the best option even if I continue renting in this area. My thinking is that my cash may be able to go further if I find potentially cash-flowing rentals out of state. 

I would greatly appreciate any tips on how to successfully navigate house-hacking in an expensive market! Or, tips from anyone that has continued to rent in their home city, but was able to start investing out of state as their first rental.