House Hack or Live in Flip?

Question

Hey guys, hoping you may be able to weigh in on this situation. My boyfriend and I are analyzing multifamily properties in Watertown NY (long distance for us at the moment). He’s stationed there currently at Ft. Drum and plans to house hack when he gets back from deployment. The problem is the agent (also a PM) we’ve been working with has been really negative on the area, tenant pool (aside from military members) and properties. While it is true the properties definitely are not in the best condition (not unlivable but not brand new) and our timeline/budget isn’t conducive right now to a full rehab, what I find the most concerning is the agent is basically telling us this area is a bad place for investors. Apparently it is illegal in this area now to ask tenants about their source of income (so you cannot know if they are Section 8 or where there money is coming from at all). While Watertown probably would not be our first choice otherwise as an investment location, he will be there with the Army for 2 more years and has to live somewhere and house hacking always seemed like a great option.

Since talking with the agent, we have also been looking at a live in flip option outside of the area that is in a much nicer location, but at the end of the two years when we sell we’d probably break even (being conservative-the property values, at least according to Zillow, on this street widely vary so it’s hard to place and the agent hasn’t given his input yet) with the 2 years of holding costs. This still would be “living for free” but seems a little riskier because who knows where the market will be in 2 years when we would go to sell (if we held it to rent we’d likely be breaking even here too, maybe $60 a month from a quick analysis). The property doesn’t need too much work as it seems someone tried to flip it already, doing a lot of nice work with the bones of the property but the inside still looks like it needs serious updating.  The property is a bungalow and is very small, only 2 bed 1 bath and about 560 sq ft but in a beachy town with good AirBnB potential to offset the living costs. The agent has said that this property generates a lot of interest but after people see it they never place an offer, whether because it is so small or because it needs updating on the inside I am not sure. The bright side here seems that there would be no tenants to deal with which was the agent’s biggest negative with Watertown. This area I think would attract good tenants if we had a multifamily property here but there do not seem to be any on the market currently and our timeline is tight.

Our agent is going to scout out this bungalow and another duplex in Watertown for us this week and give us more details. Until then - what do you guys think (Thank you if you made it reading this far)?

Michael Ablan · Answer

@Kristin Caras - Hey Kristin.  I'm an active investor, manager and broker in the Jefferson/Lewis/St Lawrence county area.  Here are my thoughts.

This area is great for cash flow.  The buy in is affordable, as are the taxes.   The rents are also relatively high for the area.

Yes, a new law was just passed the no longer allows you to disqualify people who have their rent paid for through section 8 vouchers.  However, they still have to pass all of your rental criteria.  Some of our criteria includes having a credit score of 600+, no prior evictions or felony arrests, and no history of collections.   You don't have to automatically accept someone because they receive vouchers.

I'm relatively bullish on the area, and will continue to invest here.  I don't see appreciation on my properties, but I have great cash flows and I don't have to spend $250k for a SFH.

Feel free to reach out to me anytime if you have any questions.  I'd be more than happy to help.

Hakeem Valles · Answer

Kristin, your diligence is admirable.

For the multi-unit, I would also gather other agents opinions in the area to see if the overall thesis on the area is a negative one. In my opinion, that might be a sweet niche of house-hacking a fourplex in a military town and have all of your tenants also be servicemen and women. ( I would have your husband see what the general consensus is on base before doing this). For the flip, I wouldn’t go off of Zillow to determine the ARV’s, I would just have a local agent print up comps of everything within a half-mile radius.

If you ultimately want multis in that area, and their aren’t any on the market, it’s going to take some HUSTLE. Whether you do driving for dollars then skip trace the owners. I know @Cornelius Garland has a fantastic and very affordable skiptracing service. Or go directly to the tax assessors office and have them filter out a list of multis in the area, then skiptrace the owners personal information to cold call or direct mail.

It ultimately is going to come down to what your risk tolerance is and how much time you have to put in the work required. Hope this helps !

Dan Wynn · Answer

@Kristin Caras, I had concerns with the area when i first got here as well. I got similar feedback about the area (all from non-REI types that've never done a deal).

Truth is that there is opportunity in EVERY market (even North Country) so long as you know how to recognize, expose, and capitalize on it. If the numbers work and you have sound exit strategies for the deals you analyze you will be fine. 100% agree with @Michael Ablan in that you likely wont make much on appreciation but you can easily cashflow and gain equity through debt paydown.Closing on a Triplex in the area here in a few weeks. **Buying it for almost 20% undervalue; instant equity**househacking it; I keep 100% of my BAH; I live rent/mortgage free**executing a live in flip; force appreciation into the units creating more equity and increase rents which increases cashflow.**Strategy- Hold for the long term, collect cashflow (34% COC ROI) for additional revenue stream; Cash out Refi in 15ish years and let my kids buy their first MFR.@Michael Ablan and @Kristin Caras, we should link up and talk REI over coffee/lunch sometime. DM me an let me know you're availability if you're willing.

Kristin Caras · Answer

@Michael Ablan thank you so much for clearing up the tenant screening! Our realtor was familiar with the law but not very well versed on the specifics, and I had not been able to find much through my own research.  We’re currently looking at a multifamily property in Watertown, hopefully if all goes well we’ll close on it soon!  I’m glad you’ve had success in this area - gives us hope!  Haha

John Warren · Answer

@Kristin Caras having grown up in an area with a lot of active duty folks, I am familiar with this conundrum. If I were you, I would look for a fixer upper single family home. This will give you multiple exit strategies when you get ready to move to the next deployment. The issue most military folks have is that they don't take into account how hard it is to rent out a single family or even small multi unit property from hundreds of miles away. This combined with the fact that they aren't "from" the area can really kill you in the long run.

If I were in your shoes, I would research markets where you want to retire to. This is especially true if your boyfriend might be in for 20 years to get a military pension. If you pick an area where he can/will be deployed more than once, you can invest into that area and built up a portfolio (as well as a network) there.

Kristin Caras · Answer

@Dan Wynn thanks for the input, we are about to submit an offer on a duplex in Watertown! I'm still located in DE but once I head back up north after deployment ends, we'd love to meet up and talk real estate!

Kristin Caras · Answer

Thanks Hakeem!

Hakeem Valles · Answer

@Kristin Caras I feel you on that. It may also be beneficial to connect on a deeper level with investors on BP who are in the Watertown market to get some more sets of eyes on the property.

Good luck !

Kristin Caras · Answer

@Hakeem Valles I agree, we'd love to rent just to military members, but what is hanging us up is you can't turn a regular civilian away if they're qualified... And totally agree, I'm hoping the agent can shed some light with the flip option on what the true ARV of the property would be after some updating.... The hard part is neither of us are in a position to be in the area and touring the properties, we're long distance at this point so we're relying on our agent.

@Stephen Burke Agree - the Watertown area is full of multifamily houses and the bases keep the demand for renters up (even though there isn't too much else up there besides the base).

@John Warren  I agree with the multiple exit strategies...in my mind it would be easier to sell a single family home (albeit a small bungalow) than a multifamily in most circumstances and get your money back because you wouldn't necessarily be selling to another investor. Just as you said, as for where we want to be long term, after his two years we will likely end up selling the NY property in an effort to consolidate our portfolio closer to where we want to be long term in the Delaware area.

What I wonder is it a good idea to try to live in flip with a low potential profit margin or buy and hold in a potential risky area to live for basically free? Or is it better to rent in NY for the two years and start looking for investment properties elsewhere closer to where we want to be investing long term (I guess another downside here is that you can't use a FHA or VA loan)?

Thanks again everyone for weighing in - after thinking it over so much it's great to hear what other people are thinking.

Stephen Burke · Answer

Watertown can be a good market. People speak bad of the area but its quick access to the outdoors and a beautiful countryside. Winters can be cold and snowy, but so what.