Low money down house hacking and/or BRRRR?

Question

So grateful to have found this site and community!

I have been reading and watching and listening to as much as I possibly can, and I'm just looking for advice on strategies for a newbie.

Some background: I'm from LA. I have a small amount saved up (15k) and I will be getting a sum from my dad to help contribute (somewhere between 10-40k) and I have a friend that wants to partner with me, he has money but no credit/job history for a loan (50k)

I want to buy my first home locally so I can still commute to my job in Brentwood (probably South LA/Inglewood) and I'm planning on house hacking. However even house hacking in LA will be considerably more than my cheap rent at my apt that is under rent control that I've lived in for 10 years. So once I buy a home and house hack it will still be at least a year or longer before I will be able to refinance and use those funds toward an investment property (due to FHA rules)

My main goal is to build my passive income and get out of the rat race asap.

I'm a bit torn between starting with an out-of-state brrrr in a cheaper market right away while continuing to rent, or buying a home to house hack and waiting to start investing. It is possible I could do both because of my friend that wants to partner with me, but I'm not positive because he may need his money back in a year or so. Ideally I don't want to use his funds because then I won't be tied up with it, plus full profit instead of half. I'm also worried about getting hard money loans without any investing history.

Any insight and advice would be greatly appreciated!

Steven Foster Wilson · Answer

Hi @Brendan Dekora, very excited for you to get started in your real estate investing career! Living in Columbus Ohio I have the privilege of low cost deals and great cashflow, im sure it is 10x more expensive in LA.For example, I recently purchased a 3 unit here for $160. I did about 50k in cosmetic updates, now its gross rents are $3,500 and the value is $325,000. I am going to refinance it, get about 90k back and it will still cashflow about $1800 a month.That is just one example of the opportunities that lie here in the midwest.The good thing about Columbus too is that we have a handful of companies that have recently setup headquarters here: Chase, Huntington, GM, Disney is building a park, etc..

Kevin Hunter · Answer

@Brendan Dekora, I think there are advantages to both and you already know what they are. If I were in your shoes, I would buy a place locally and rent out the rooms. Will it be more expensive than your current rent-controlled apt, yes. Is it an investment, yes. So look at it like one. Investing money in you and in your real estate education is something you want so don't be afraid to invest in yourself. Also, one of the most recent podcasts interviewing a house hacker from Seattle, also really expensive, and the guy is killing it. So it can be done. Good luck!

Ali Boone · Answer

The easiest way to start is to just run the numbers. Run the numbers on all scenarios, and see what pictures those paint. That alone might make your answer very clear. A couple articles to help with what to think about as you're pondering... one about buying properties to live in versus investing while renting, and the other about househacking specifically--https://www.biggerpockets.com/...https://www.biggerpockets.com/...If you need help on running the numbers, I can send info on those too.

Mitchell Toney · Answer

@Steven WilsonAwesome job man! Looking around in the Columbus market myself and would love to connect and chat!-Mitch

Jimmy Lieu · Answer

Hi Steven, That is really inspirational. I'm moving to Columbus in a month or two to start house hacking. Would you recommend doing a BRRRR as my first property at all if I do not have experience with rehabbing at all?I am definitely leaning towards house hacking, but I've been reading more on BRRRR and it seems like such a great concept to build your RE portfolio.

Steven Foster Wilson · Answer

@Brendan Dekora I refinanced an FHA into an FHA cash out (allowing 85% LTV) typical is 70%. And it was well worth the wait.

Steven Foster Wilson · Answer

@Brendan Dekora im always up for a chat about my local markets, so if you have any questions, id love to be a useful resource.

Mikael Winkler · Answer

Definitely agree with @Steven Wilson. Comboing a house hack and BRRRR, if you're willing to live in construction (it's not that bad), is an awesome strategy. You're getting both benefits of living less expensively AND being the one capturing the equity in forced appreciation.

Steven Foster Wilson · Answer

@Jimmy Lieu I just sent you a PM, would love to chat more and if anything just give you some local tips and favorite restaurants!Also I say why not house hack and brrrr at the same time? I lived in one side of a duplex and rented out 3 bedrooms on the other side to friends while their unit was undergoing construction. I told them it will be dusty, dirty, you might not have running water or a kitchen for a week or two, but they were fine with it with cheap rent at $250/month. If your creative you can make money in just about any situation.

Ali Boone · Answer

Sounds like you're thinking it all through really thoroughly! That's the best first step. Good luck!