Seeking Guidance on Investment Strategy- New to the Game

[Dominica Zhu]

Hi everyone,

I'm so happy to have found this community. I am new to real estate investing, in fact, I've spent the last few months absorbing as much information as I can. I'd love to be as transparent as possible. My goal in life is to pursue my social impact work and be financially independent so I can do so. My last seven years have been spent in humanitarian work and I wish to build my financial independence so I can keep doing that. I will also say that along with stock investing my goal is to be financially independent in 10 years. That being said, my current W-2 job has become more unstable because of changing times with COVID and cuts with funding. That has put a huge fire to start to really get my first deal, even though I still feel I have a lot to learn. 

I live in Seattle. I have enough for a good downpayment and want to house hack a multifamily unit. I told a friend this and she advised I look out of state because the amount I have saved up can stretch way farther in another state. I don't necessarily want to move but I do want to get the most out of my money. My questions are:

1) how do you know what strategy to try first? I am definitely drawn to house hacking bc of the house rental prices in Seattle area. Would you advise the first deal be in state or out of state? Why?  

2) A friend advised me to go to a loan officer to see what I can qualify for. Should I do this before I have my strategy figured out? If I get my pre-approval, how much time do I have before I have to find my "deal"? And does this work for out of state? 

I'd like to have a deal by November/December since I am not sure my W-2 will last past that with the budget cut. Does anyone have any suggestions for this situation? I would love to hear the thoughts in this group and what you would do in my situation and how you would strategize. I want to be thorough in my decision making, but I do feel like I am on a time line. Please advise, thank you so much! 

[Michael Haas]

@Dominica Zhu - I second Brian's recommendation to pick up Craig Curlop's book on house-hacking, its a great introduction to the subject.

Pre-approvals are typically good for 90 days, and area very easy to renew (assuming none of your w-2 income or liabilities have changed recently). I'd recommend doing this now if you'd like to get into a house by December. PM me if you'd like the contact info for some good investor-friendly mortgage brokers.

How experienced is your friend? You'll want to look carefully your friend's personal success before taking their advice. Advice is free, but the wrong advice can cost you a lot.

I'd highly recommend house-hacking- thats how we've built our rental portfolio with low money down and great Cash-on-cash returns. In our experience, the biggest benefit is lower loan costs and lower down payments - for the same $40,000 down payment, you can buy a $600,000 house in Seattle (5% down) or a $145,000 house in the Midwest (25% down, pretty much a requirement when buying non-owner occupied properties). Your loan for the investment property in the Midwest will also be about 0.4% higher interest rate, as there is a rate discount associated with owner-occupied properties. 

When the market appreciates would you rather own the $600,000 rental property with a lower interest rate or the $145,000 property with a higher interest rate if they cost you the same cash to purchase? 

Feel free to shoot me a message if you want to grab a coffee talk about the difference in the two strategies in more detail. Cheers!