BRRRR or House Hack?

[Pedro Cardoso]

Hello everyone, I recently moved to LA and I am working in Downtown Los Angeles. I am looking to buy my first property and I am really undecided if I should use my savings (~$130k) to buy a BRRRR property in the near cities or if should put that towards a down payment and house hack a property closer to my office location? Would be great to hear some thoughts.

House hacking could be a great way to get material savings as it would eliminate or materially reduce my rent/ “living costs”, while creating equity in the process. But on the other hand I would be locking up a good amount of my capital.

For the BRRRR it would be great to get some cash flow and recap my money in the near term, but I am a bit concern of buying my first property in a relatively fairway market (as prices in the surroundings of greater LA are pretty high).

I am really on the fence and it would be great to get some thoughts or hear about someone’s experience.

Thanks,

Pedro

[Jon Schwartz]

Originally posted by @Pedro Cardoso:

Hello everyone, I recently moved to LA and I am working in Downtown Los Angeles. I am looking to buy my first property and I am really undecided if I should use my savings (~$130k) to buy a BRRRR property in the near cities or if should put that towards a down payment and house hack a property closer to my office location? Would be great to hear some thoughts.

House hacking could be a great way to get material savings as it would eliminate or materially reduce my rent/ “living costs”, while creating equity in the process. But on the other hand I would be locking up a good amount of my capital.

For the BRRRR it would be great to get some cash flow and recap my money in the near term, but I am a bit concern of buying my first property in a relatively fairway market (as prices in the surroundings of greater LA are pretty high).

I am really on the fence and it would be great to get some thoughts or hear about someone’s experience.

Thanks,

Pedro

Pedro,

Some good suggestions here, but there're all broad and from out-of-staters. Not the most helpful. Especially those who said, "Why not do both?!" Uh, because money doesn't grow on trees, fellas.

I don't know many people who BRRRR in LA and I think it's because homes are so valuable that it's difficult to find a BRRRR that will cashflow after refinance.

To throw some numbers on the board: the median home price in LA right now is around $800K. If you executed a "perfect" BRRRR, you'd be in for $600K and refinance all of that out. At a 3.5% rate, the mortgage payment would be $2694. Property tax would amount to $847/month. So even before accounting for insurance and maintenance, the BRRRR'd house costs $3541/month. Of course, houses do rent for $3500 and more in LA, so I'm sure BRRRR opportunities do exist, but they're probably more difficult to make work in this market.

At any rate, if you're BRRRRing, you'll want to see what's on the wholesale market. I'll shoot you some wholesalers' info.

Househacking is great because it reduces your cost of living, but you're right that it ties up a lot of capital.

Here's an idea: BRRRR a househack... kinda. Maybe hone your search to duplexes (or larger, if the budget works) that are very distressed. At the very least, you'll be able to fully renovate your unit and the building's exterior. If the building's vacant, renovate the whole thing. Then, do a rate refinance (as opposed to a cash-out refinance, which usually has a higher rate) to get rid of any PMI. Then, open a HELOC on the remaining eligible equity. You won't get all (or even most, probably) of your money out, but you'll be enjoying the low cost of living and get at least some back out.

Does that make sense?

Best,

Jon