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Does it make sense to buy for rental property that doesn't hit 1% rule if I Househack
I have been listening to the bigger pockets podcasts for a very long time and have been in analysis paralysis for years. I plan to take the risk ASAP and am looking at a rental property that I plan to house hack. I plan to live in the unit for a couple years before moving out and buying another property. The property does not hit the 1% rule currently but I believe with all the continued development in the community that within the next couple years I can raise rent enough to hit the 1% rule. What would you do? it is in Massachusetts so appreciation is there but cashflow has always been lacking.
In high cost areas, it may be virtually impossible to cashflow/hit the 1% rule today. However, 5-10yrs down the line, that 1% rule may be very easily attainable. Also, everyone is anticipating much lower rates over the next 12-18months, so if you purchase today you will most likely refinance to a lower rate in the coming few years.
With Real Estate it's important to remember not only that it is a long term investment, but that there are many ways to make money on the asset. Cash flow is only one of them.
I'd say, if you aren't too far in the negative with the property's expenses and you are able to see growth in the area's future, then go for it and don't get discouraged if you face difficulties in the beginning. Everyone here is still learning, and we all started our journey somewhere.
Both of my househacks are in MA and neither meet the 1% rule. It’s rare in MA unless you’re shopping less desirable areas. It’s 100% worth it if you are in an appreciating area and you can afford it. I didn’t house hack to just cash flow after I moved out. I house hacked to lower my cost of living, which i did. So don’t let the 1% rule hold you back.
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Don't go by any 'rules'. Look at the numbers and what the norm is for the area. If you are living in one unit, will you be paying less than you currently are renting? If you rented out both sides, what would the numbers look like? Some areas will not cash flow simply because of how the market is.
- Real Estate Broker
- Houston | Dallas | Austin, TX
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To assess a property's potential beyond the 1% rule, consider factors like cash flow, market trends, income streams, house hacking benefits, risk management, long-term vision, and professional advice. In high-appreciation markets like Massachusetts, properties can still be great investments due to rent increases and appreciation. Professional advice from local experts can provide insights.
Good luck!
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Real Estate Agent Texas (#736740)
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- Podcast Guest on Show #469
For house hacking, more important than the 1% rule is to see if it will cash flow when you move out. If it can support itself as a rental you should be in good shape.
In addition, hopefully living there while renting out the other units makes your housing expense cheaper, allowing you to save more for the next investment.