Information Overload, House Hack or OOS Investing?

Question

Hey Bigger Pocketeers!Brief intro, I've been listening to bigger pockets for a couple months now and have been diving head first into learning everything I can about buy/hold strategies. I'm a bit overwhelmed with all that I've been reading and wanted some advice on what you might do in my situation. I got pre-approved for a loan (Yay the first step) and was originally thinking of house hacking in the bay area, specifically in Oakland, San Leandro, East Bay but it's so expensive and maybe I haven't calculated enough deals yet but it's hard to make the numbers work when all these properties are 500k+So I was wondering if it was worth doing a house hack here, or just purchasing investments out of state. I was thinking Dallas, ATL, Portland. Would love to hear your thoughts and if anyone local wants to meet up for coffee or drinks I'd love to connect.-Angus

Matt R. · Answer

If you can invest in Bay area or are just renting now perhaps favor the house hack. Statistically and historically a Bay area investment is most likely going to be a more profitable buy and hold when compared long run.Secondly, I am not sure how much rent you want to pay in your 40s - or in retirement and buying housing that doubles as residence might fix those expenses or eventually be living rent free sort of speak.I am not a huge fan of investing in areas you know very little about. Good luck!

Arlen Chou · Answer

@Angus Yang welcome to BP and specifically the Bay Area crew. First thing you should do is step back and look all profitability before you look at the product itself. As an example, Texas is a great state to invest IF YOU ARE NOT from Ca. The reason being is that Texas has crazy property taxes vs CA that has prop 13 AND Ca has crazy state income tax vs Texas that does not. Basically by living in CA and investing in Texas you are placing a heavy tax burden on yourself.If you are already qualified for a loan on a primary residence, that does not equate to a loan on an out of state investment property. You should verify with your lender before going to far down the research road on specific OOS investments. You may need to get qualified once again...Going back to the topic of taxes, if you house hack you are shielded from appreciation gains for up to $250k when/if you sell. You don't get that with an investment property. There are some other potential tax benefits to house hacking vs doing an OOS investment. Some people are just not able to do a house hack because of the living arrangements and not wanting to deal with tenants. But I think from an overall perspective, it is one of the best ways to get into real estate investing.Goodluck to you and report back on which road you decide to take.-Arlen

Chris Mason · Answer

Quick note @Angus Yang: Some of the first time homebuyer mortgage programs go away the second you own residential real estate, even if it's an investment property that you've never lived in 5 states away.Good luck. :)

Steve DellaPelle · Answer

@Angus Yang I would suggest going with a house hack especially since this is your RE first venture!Being able to control everything in your own home will make it a lot easier while you are working a full-time job. If you have any questions feel free to PM me as I am house hacking/working full-time AND also have a SFH that is out of state for me.Cheers!

Elian Stuff · Answer

AngusI sent you a message, check your mailbox.You want to learn more also, show up at the BP meeting in SF on 3-7-18 at 6-8pm.Its mentioned on the BP Meet Up schedule.

Tom Ott · Answer

Investing out of state in an affordable market is very common for people in CA. This allows you to invest in a market that will get you a much better ROI in cash flow.Try looking at:The Best Types of Markets for Profitable Turnkey PropertiesandWhat to Ask When Working With a Turnkey Provider

Lane Kawaoka · Answer

Angus Yang it comes down to how much money you have to work with and how much time your have. I would put an emphasis on just getting started with a rental and not freaking out with which is is because most people talk to are just delaying the decision.

Angus Yang · Answer

Thanks for the replies everyone!This definitely helps, it sounds like House Hacking is something to focus more of my attention to for now. I'm actually going to invest with a business partner so that should make it easier. Also might look into Turn Key properties. TBD

Rob Beardsley · Answer

Hey Angus, This question in its more simple form is whether you would like to be an active (house hacking) or passive (OOS) investor. If you make a lot of money in your field, you may want to continue to focus on that job rather than diverting your attention away.

Ali Boone · Answer

The famous debate. Here's an article that may strike some thoughts for you-https://www.biggerpockets.com/renewsblog/2015/11/1...I live in LA, so same situation here as in the bay area as far as numbers. I've always gone out-of-state so the article may sound slightly biased towards that direction, but for the most part it lays out the objective options and things to consider.At the end of the day, calculate the numbers on both options and see what you find.slight p.s. the markets you mention aren't horrible, but either not the highest on the cash flow spectrum or not going to cash flow at all (Portland). Just keep in mind the numbers as you search through.Happy to chat more anytime!