House hack annually in HCOL area or seek out deals elsewhere?

Question

Hi everyone, I thought about submitting this question to the podcast, but I wanted to post it here first to see what people here thought.

The location wasn't available from the drop-down menu, but it's Northern Virginia, Fairfax.

I'm currently a fresh investor planning to scale and located in the Northern Virginia region. My current properties include a townhome on the further edge of the Virginia side of the DC metropolitan area, which my father rents out, and I break even on in terms of income from his lease. My only other property is a free-standing single-family home bought with a friend and where I currently live now. Both of these properties started as house hacks, and I'm confident that both will cash flow modestly and appreciate to a larger degree as time goes on. These results were due to good fortune in finding and negotiating a good deal and locking in a low rate early enough to keep my monthly payments as low as possible. I'm in the process of appreciating out of the PMI on my first townhome/father's residence.

I know that David recommends that, at the minimum, a real estate investor should prioritize accumulating a property every year through house hacking. I shared this mindset back in 2019 when I bought my first one and proceeded to buy another 18 months later. As a result, my fiance and I are on board buying single-family homes like the one I'm in now and in the same general location. However, due to rising rates on top of higher prices, I'm concerned about exit strategies when the time comes for my fiance and me to move on to our next next house hack (the next house hack after the one we plan to buy this year), as the monthly payment cannot cashflow positively by renting out the whole house. The solution I have in my head is to continue to rent by the room. While I wouldn't describe my area as a "college town", we live near the state's largest college in terms of the student body, with most being commuters who will need the kind of housing we're looking to own and provide. However, is this a sustainable scaling solution? I don't mind putting in room-by-room management to both cash flow and scale in this high-demand area; however, buying one house hack a year is probably the most we can do at our current incomes.

I've heard David stress that people shouldn't emphasize cash flow as much in today's market, and the market I'm in, I feel, embodies that philosophy. Future rent increase potential and appreciation will be incredibly powerful in this DC metro area, with the university accessible even without a car.

Now on to my questions:

1. Should I continue with my plan to house hack one new property a year even if I won't be able to lease the entire house for positive cash flow and be forced to rent by the room to sustain operations?

2. Is there a point where these management plans become an unprofitable, time-consuming activity that might hold me back from future opportunities?

3. Finally, from the picture I painted of my local market, would it be better for my fiance and I instead focus on getting a property to house hack with plans to reside in long-term? After which, we'd use those savings to prioritize other forms of real estate investing, such as BRRRR, STR, and long-distance buy-and-hold.

Joaquin Camarasa · Answer

We have actually quite a few aspects in common. I was rereading your first post and I also bought my first single family home with a friend. I am also planning to bring my mom over from Spain and I am preparing the set up as well. I am one of the organizers of a meet up in Tysons corner along with @Sean Sullivan @Peter Siler @Fabian Friedrich and @Daniel Amsalem we will be happy to meet you at some point. No pitch no sales on meet up, we have a fb group as well. We have had a few spammers lately so working on that but for the most part is a healthy community.

Nick Riccio · Answer

@Grant Pitarys Congrats on all the success so far! I have very similar conversations often with my wife. We live in Boston, Ma (very expensive) and are on our third house hack. We likely will do 1 more house hack, or this might be our last.We definitely had the feeling of "We can't make it work here locally" because it's too expensive. We pivoted, and now only buy major value-add projects (finishing basement living space, adding beds/baths, etc.). This strategy has allowed to able to continue to buy in our market, instead of heading elsewhere. I think it's all preference at the end of the day, but I would not advise to buy a property in hopes of appreciation, as that is just gambling. If you guys can figure out a strategy that will work in your market - great. If not, start looking elsewhere and focus on finding properties that will work for you and your fiancé and your goals.

Nick Riccio · Answer

@Grant Pitarys I did not. I house hacked these with FHA mortgages. Then self-funded the renovations, and then refinanced after that. Not the most fun living through the renovation chaos, but allowed us to get started in a market that we otherwise wouldn't have been able to afford.

Grant P. · Answer

Hi Joaquin, thanks for taking the time to read my thoughts and give your thoughts too. I'm glad that my gut is showing me that it's unrealistic to attempt such a feat of one home a year in this market and environment. When I moved to Virginia after high school I lived out in Springfield until it was time to start house hacking. I feel very fortunate that the two properties I have already can cash flow as an entire home when the time comes. While I do own now and can stay in my current living situation for longer, my fiance and I want to move forward and own a property together, so she'll really appreciate your opinion that it might be best to stick with one property for a longer period of time, rather than trying to scale for one home a year. It's also funny you mentioned looking into second homes an hour or two away, as last weekend we toured a model home in Potomac Shores that we feel would be perfect for us for the long term, but not necessarily in line with our investment goals in the short term. Short term we were hoping to scale around homes accessible without a car to George Mason University. We're both incredibly bullish on the future rents and appreciation of our area, but it could be a lot of work and capital to accomplish. Long term it's great because we lock down a wonderful property in a location we both love, with a basement that lends itself well to rent separately if needed. We anticipate my future mother-in-law will be between the US and her home country when she retires, so having that option appeals to us. Not necessarily an investment as much as a preferential living condition. We still have some time to do as you suggest, wait and see with the market. I notice more and more listings in our zip code as the days go by, so maybe that will lead to some deals. Otherwise, reading that makes me consider looking into the community we visited. Thanks!P.S. Since you are local, do you happen to know any Northern Virginia-specific REI groups? Most of what I can find is for the entire state.

Carlos Josue Hernandez · Answer

Would love to be included in this group as well! Also in the northern VA area and looking to lock in a house hack Q3/4 2022

Grant P. · Answer

Hi @Daniel Amsalem, Thanks for sharing your thoughts and how you've worked around the HCOL in the area. Your numbers sound great and with just a basement pulling in $2000 that gives me some confidence if I try to be particular on the location, especially close to the metro while being accessible by public transit to the nearby university. Our timelines seem pretty similar as well. Good luck with your next property!

Daniel Amsalem · Answer

Hey @Grant Pitarys, great post. It definitely echoes the thoughts my wife and I are having. We’re on our first house hack in Alexandria, about 9 months in and aiming for a second in Q3/Q4 of this year. I’d love to do what @Nick Riccio said and find a place where we can value add by creating another bedroom of bathroom. But having a tenant ready walkout basement or ADU in great area has been invaluable for us Right now, we’ve got our basement on AirBnB as a monthly rental and it’s pulling in excellent rent. About $2,000 on a $2,800 PITI.Because we’re near the metro and in an area popular with the military, as well as doctors and school faculty, I think mid term rentals will be consistent tenants for us.With that in mind, I believed you can cashflow a few hundred bucks with mid term tenants and/or long term if the space is set up for multiple tenants.That’s our plan and we’ll pivot as we learn more and test theories!

Grant P. · Answer

Hey @Nick Riccio thank you for your kind words and for sharing the similarities to your situation and strategies of how you've adapted to your market. I agree that appreciation shouldn't be the core justification for any investment, but moreso anticipating that rents will reach the level necessary to cashflow the entire house rather than relying on renting by the room. If I may ask, for your value-add projects, did you go a hard money lending route and then refinance out to a conventional mortgage to accomplish that?

Grant P. · Answer

That's funny how similar these things turn out. My Fiance's mother is currently in the states working but plans to frequently travel back and forth between here and the Philippines. Thanks for feeling comfortable bringing me into the group you organize. I hope to learn a lot from the members there as I focus more on what my goals are for real estate as I plan for the future.

Joaquin Camarasa · Answer

I am on the same boat, househacking, currently own two, I househacked both, one in Denver Co and another one in Springfield Virginia. I think one househack a year might not be realistic with current rates and prices in our area. Unless your back up plan is to stay longer then I think that's fine. Option 3 to me is the most realistic. Of course everything changes if you can find something that makes sense number wise and you can break even when you rent the whole property. It will be very challenging with the current market. I would only buy if the other alternative you have is rent. This is not your case, you already own. I would look into second homes an hour or two away from here or maybe a condo investment in our area that rent can break even as they have lower prices. I think it is wise to watch what happens with the market in the next few months and reanalyze.