House hacking: established vs up and coming?

Question

Hello BP community:

I am a rookie who’s looking to do my first house hack with multi family units. I have a family of 3 kids so we need to pick a decent school district which up the purchase price. My question is - would house hacking be better with established neighborhood (Frisco, TX) or up and coming (Prosper, TX)? We are looking to do 3% down, owner occupied for 1 year and move on to the next but needs to stay in the same school district to minimize the impact to our kids when moving from one house to the next. We don’t expect to cash flow in the first few years due to school requirement and hot seller market. In this case, would it be better to do house hacking in the established neighborhood because the rental value might be higher (quicker COC) vs up and coming with lower renter but equity build up could be bigger because of lower entry price.

Would appreciate your advice and pointers if I missed anything. Thanks.

Matthew Brill · Answer

I would go with the path of progress, especially if you aren't able to find forced appreciation in a property in the established neighborhood. Cash flow will help you towards financial freedom but the real wealth is made in appreciation.

Andy X. · Answer

@Austen Mueller just to confirm my understanding, the “market decides” meaning the stringent appraisal won’t be able to match the market price due to the bidding in the established neighborhood, unless you up the cash to make the difference. If so, That makes sense. I plan to do conventional 3-5% loan instead of FHA so the PMI will come off at 20% automatically.

I am debating whether I should do MF or SFH for housing hacking with my young kids and school requirement.

Austen Mueller · Answer

I assume your doing FHA. If so, you may not even be able to buy into an established market, and if you do, the property may need work. What I'm trying to say is you may not be able to make that decision the market will make it for you.

Matthew Brill · Answer

@Andy X.

That is really a personal decision. Personally, I am early in my investing career with a strong income from my profession. I'm much less concerned with making $100-200 monthly per door and more interested and willing to be aggressive in creating wealth. So I am more comfortable with taking the lower cash flow, higher upside properties. But I do have some properties that are more cash flow oriented to balance out the portfolio. For example I have a duplex and a SFH that will not see much appreciation but they make $700-$1000/month in cashflow. And I have some other properties that will appreciate more and make less than $100/month cashflow. So if they have higher expense months the cash flow properties provide an extra cushion. It comes down to what are you investing for and what best helps you reach your goals.

Andy X. · Answer

@Matthew Brill make sense.

We have 2 strategies now:

1) house hacking in MF - with hot market, MF is better to keep the mortgage payment low, and easier to cash flow when we move out. But my spouse is not a big fan (we have 3 kids), so my next option is

2) BRRR SFH and separately invest in MF as pure investment property - buy fix upper starter home, repair/upgrade, and move out after 1 year so it can cash flow at prevailing market rate, and then buy the next SFH. In parallel, we would also invest in multi family or student housing units so we can build out our portfolio.

Question - would you rather cash flow over equity or other way around? I am thinking with pure investment, I could pick property that’s easier to cash flow because of no stringent school requirement, but appreciation may not be as fast if you buy somewhere more desirable with greater appreciation? but also pricer and dent the CoC in the short run.

Austen Mueller · Answer

MF will be more comfortable especially with kids. And yes. I fear if the offer is not strong enough and you have no leverage, you will be forced to take the deal that works regardless of where it is. And having a conventional loan is better from an offer standpoint than FHA. Not to say its impossible just requires more patience and work.

House hacking: established vs up and coming?

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