How Can I Escape my High Cost Situation & Invest More

Question

I would like to run something by you guys and ask for some advice. I am currently house-hacking a duplex in Columbus, OH and I think it is actually setting me back. I used a 0% down loan, 7.5% interest rate and have a total payment of $2,500/mo. However during the winter I had to lower rent for the other unit to $1,195 (water included). Because of my monthly payment and what I am actually bringing in from the other unit, I am putting $1,750 towards the mortgage each month (my share of rent along with expense/vacancy/maintenance budgeting). This is WAY too much for me personally and I can't really save a dime towards future investments. I was hoping to eventually refinance into a better rate like the mid 5's but this has been impossible recently. Each of the two units should be going for $1350-1450/mo.

My goal originally was to house-hack this for a little, then move out and try to house-hack something with more favorable numbers where I could save a lot more (only have to pay around $800-1,000/mo). Because my portion of the payment has been so high, I have not been able to save at all. I really wanted to expand my portfolio this year and add my second property but it is looking impossible and I am almost becoming discouraged. I do not have connections for private money or partnerships and I have been stressed out about what options there are for me to better my situation. I would love some advice/recommendations on what I can/should do in order to lower my living expenses and be able to put money towards a second property. If you have any questions, please ask and I will share more info! Thank you in advance.

Matthew Irish-Jones · Answer

@Thomas O'Donnell you should slow down.  You are in your first double and paying some of the mortgage, not all.

Real estate investing is a long slow game.  You should be building equity.  While you build equity, figure out how to get your income up.  7-10 years from now you can refinance, move out, and purchase your next rental with the refinance money.  Just make sure the two units rented will be cash flow positive after the refinance.

Chris Seveney · Answer

The options I would consider would be:

1. Find a cheaper rental to live in and rent this unit out. But that does not sound like it would solve the problem as if you brought in $1200 for the other unit still sounds like you have $500+ out of pocket + rent

2. Sell the duplex, get a cheaper rental to live in and save up.

Many people WANT to get into real estate and grow, but two things you need that take time are experience and money. Some people are born with the latter but most of us are not. Real estate is the long game and over stretching early on can set you back years.

Jon Kelly · Answer

@Thomas O'Donnell I'm confused. What was your original plan going into this? The only difference in your assumptions is that actual rent is $150-250/mo lower than expected. That shouldn't be stretching you so thin.

Can you move out, rent your unit for $1,400/mo and then live with roommates at $700-900/mo?

Now is not the time to borrow more money from private investors. Now is the time to get your personal finances in order.

Ed W. · Answer

@Thomas O'Donnell

There are a number of good suggestions within the replies you've received.  One caution.  While I like the "roommate" idea (and one or two others) you are feeling some pressure and, between that and a lack of experience vetting tenants, you have an increased possibility of being too hasty and allowing the "wrong" tenant in.  Make getting a good tenant the priority.  There is a lot of good landlord-tenant advice on BP.

Milton Chamberlain · Answer

First, Congrats. 24 and already own a duplex. Way to take advantage of your time capsule and start early.

I understand the sense of urgency, but you are doing swell, so don't shoe-horn anything and get into a bad spot with private/hard money.

I also get that $1700 is too much, so can you get a roommate? Or Rent out your side and personally rent a room for $400 from someone on Craigslist or FB Marketplace, so then you would only be out $800-$900 vs $1700?

Also keep in mind, if you do choose to sell, if you live in it for 2 years out of a 5 year period you will not pay any capital gains tax. HOWEVER you always have the option of a 1031 exchange (which costs around $1000 in my experience)

Keep up the good work!

Max Ferguson · Answer

How long have you owned the property? Sounds like you may be able to barely cover the mortgage for a year if you moved out, after that you will be cash flowing. I would try to keep the property if possible and wait for cash flow. Roommates are another great idea for now as well. If you have a large amount of equity you could pull that out for another property that has better numbers. Holding at this point would be best for you if you can do it. Let us know what you decide and good luck!

Ryan Normand · Answer

Is the property in need of a remodel? If you're strapped for cash, you can DIY some upgrades to the unit you're currently living in to make it more desirable. Then when the current tenant moves out you can rent out the newly upgraded unit for a higher rate, move into the non-upgraded unit, and repeat the process over again. By the time you're done renovating the second unit you'll have built some equity and savings and be in a better position to expand.

Of course, this all depends on the current condition of the property, what other units in the neighborhood look like, etc. You'll also have to be somewhat handy, but if you're willing to put in the time and sweat-equity most of the basics can just be learned on YouTube these days.

Thomas O'Donnell · Answer

Hey Milton, I appreciate the kind words and feedback. If it was just me I would think about renting a room somewhere, however I also have 2 cats and have not had good experience renting rooms places so that would be an absolute last resort. If I was to live in this one for 2 years, I think at the end of that I still would not have much money to invest since the $1700/mo is draining me already. I have considered moving into a 1 bedroom apartment around $800-900/mo and renting my side for at least $1400/mo. However I would still need to put about $400 towards this place in budgeting (putting me at around $1300-1400/mo which is a little better than the $1760 I'm currently doing a month). But these cheaper apartments would not be in the best areas and I would hate to get locked into a year lease, since if I came across another house-hack that worked for me, I would have to break the lease or would not be able to move into it.

Jimmy Lieu · Answer

Hey Thomas, I did a very similar thing by moving from Portland, Oregon to Columbus, Ohio and started off my real estate investing journey by house hacking! I recommend getting this house hacking situation resolved before thinking about buying any second property. Some things I would recommend looking into is:

1) Renting out bedrooms and having roommates on your side of the duplex. You should be able to easily rent here in Columbus Ohio any bedroom for at least $600/month.

2) Moving to a different rental and fully renting out your duplex if it will be positive cash flowing then

3) Selling the duplex and taking the loss and taking this as a learning lesson

I'm a local investor and agent here in Columbus Ohio and having house hacked and going the "full-time real estate investor" route, I can definitely help with your situation and figure out a solution. I'd be happy to connect and answer any questions you have.

Andrew Freed · Answer

@Thomas O'Donnell - Can you get a roommate or two in your unit to help cover the $1,750? I house hacked a 3 family where my mortgage is $3,200. I raised the current tenants rents in two of the units to $1,500 each but I was determined to not pay rent so I got a roommate in my unit for $800 a room. I know it's not truly an apples to apples comparison but where interest rates are at, having roommates is critical to supplementing the mortgage and lowering your living expense.

How Can I Escape my High Cost Situation & Invest More

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