Alternative to House Hacking?

Question

House hacking seems to be the absolute best way to start your investing portfolio, per these forums and the many articles I have read on starting out in real estate.

As someone who has a growing family (wife and two kids) and living in an expensive market (Phoenix), is there another smart, solid way to get started in REI?

Pamela Sandberg · Answer

A method you might consider is a property with a casita/in law suite/etc. You can rent our the unit, but still maintain privacy in the main house for your family. This is also a good way to learn how to deal with landlord issues.

Joe Splitrock · Answer

Many people choose to not share a house or walls with other people. The power of a house hack is leveraging first time home buyer or low down payment programs. You can invest without these programs, but expect to pay 20% down payment. Many people start out buying a single family home or small multifamily. The other popular method on BP is BRRRR, which involves buying a distressed property and fixing it up to gain equity. After rehab is complete, you can often get much of your cash back out. This is a way to avoid having 20% of our cash stuck in a property.

House hack is great, but for people with families or people who like personal space, it may not work. There is lots of options so don't let that deter you.

Landon Moore · Answer

@Kyle Parcell Great questions.

I too live in the Phoenix area. I moved here two years ago and purchased my first home. Fast forward two years to today, I completed a cash out refi, and now I am using that as a down payment on our next property. I have tenants moving in starting September to the house.

The next house has a guesthouse in the back that I am AirBnB'ing. The owners already switched me over to the account and I have multiple bookings past closing date. So my only recommendation would be to make what you are living in be a non-emotional decisoin and plan on making that a rental. Then keep going. and eventually you will find yourself in a position where you can be more prepared for opportunity.

Good luck and have fun!

Pamela Sandberg · Answer

If you like, I can send you some sample properties on the market with ADUs just so you can run the numbers. It's worked out really well for a lot of owners.

Also, be sure to check the terms of your FHA loan. They may not allow you to rent it out if the loan is ONLY for a primary residence. Check with your lender just to be sure you know about any potential complications.

Nicole Heasley Beitenman · Answer

There's no reason you can't house hack with a family. I lived in both houses and apartments as a child, and I didn't have any poor experiences. It's a great way to teach your kids about turning their largest expense into an asset. That being said, if you're truly against sharing a wall with someone because you have a family, partnering or BRRRR'ing are probably your next best choices.

Tyler Weaver · Answer

With a family you have 4 main options

1. Live in Flip

2. Buy properties that you can later rent out with low down payment loans - Live in them, move out and rent. Variations include buying distressed and rehabbing.

3. House hack, but with side-by-side townhome style multi and rent out the other unit(s)

4. Invest the "normal" way, getting traditional loans on rentals. Either focusing on increasing your revenue from your job, building value in the BRRRR model, or a combination of both.

David M. · Answer

@Kyle Parcell

A "live in flip" / house hack is the same thing if you sell it.  Basically, these are all variations of what / how do you do after rehabbing the property.  If you are living in it, its a house hack generally.  If you aren't living in it and going to sell it (i.e. not rent it), its a flip.  Thus, if you combine the "hack" part with the "flip," then you are living in your rehab which are you are going to sell.  Normally, its after 2 years to get the sec121 exemption on capital gains.  Meanwhile, if you are keeping the property, the BRRRR method comes into play because of the refi.  You could be living in it, not living in it, or bit of both (in the case of a multifamily property).

The BRRRR still requires that you have enough cash to have the loan at the end of the method AND be able to have cash to do your next deal.  That is a key factor in completing the last "R" in the method that I think some people skip.

But, I think back to you original question, you might "house hack" your first residence to get you started.  Then move out to a new primary residence and then leave this as a rental.  Part of the advantage of the house hack is the favorable financing afforded owner-occupied properties as opposed to investment properties.   Understandably, with a family you may not want to expose them to tenants, in which case you are SOL.

Good luck.

Pamela Sandberg · Answer

They definitely exist! Sometime you have to hunt for them, but they're out there. You also have to be careful of the zoning. They aren't technically allow on a property that's only zoned for single family. The City of Phoenix hasn't enforced this (yet), but that day could be coming.

Mark Gauger · Answer

@Kyle Parcell As has already been mentioned, a live in flip is another method to "house hack".

If you purchase right, you can buy a single family house that you build equity into while you live there. After improvements are complete, you could either get a HELOC to access the equity for investing elsewhere, or you can sell after 2 years with likely no capital gains tax and then repeat the process again.

If you buy right and are handy and can do most/all the improvements yourself, this can be just as effective at wealth building as the traditional 2-4 unit house hack. I believe I've seen @Mindy Jensen post about using this strategy.

Tanner Sherman · Answer

@Kyle Parcell definitely look for MIL suites. I just looked at one that has a little suite above a garage in an air Bnb area so I’m sure the vacancy is higher but the cash flow is much much higher. Also the labor of the turn around.

The house I just got under contract has an unfinished basement with a walk out so our goal is to close it off from upstairs and build a path up to the back sliding door and do an air Bnb. I’d rather furnish it and clean after every tenant than have a tenant down there all the time. Having a bad tenant with air Bnb is much easier than a bad long term tenant.

Alternative to House Hacking?

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