Going to college next year, planning on House Hacking. Any tips?

Question

Hey!

I'm currently 17 as a Junior in High School and next year in 2021 I will be going to college. I plan on going to UCSD and house-hacking in San Diego. I have been reading endlessly on topics of house-hacking and real estate investing such as "The House Hacking Strategy", and I'm extremely interested and completely all-in on wanting to do this RE strategy. IF I'm able to get an FHA loan of 3.5%, I can get a down payment easily on a (300-450k) house. My problem, though, is that I'm scared that I won't be able to find roommates or tenants and will be left paying the mortgage out of my own pocket rather than my tenants' pockets. I also am worried about extreme renovation costs that will exceed my budget. I don't have much connections within real estate and I have no real guidance. If you guys on this platform have any insight, suggestions, or recommendations for me, that would be amazing.

Thanks, hope to hear from everyone!

Leo Chun · Answer

@Craig Curelop - Thanks for your reply. I loved your book, an incredible amount of insight! Glad to say it was my bug to get me into house hacking, so hopefully I'll have a story to tell where I can plug your book, haha!

I appreciate the advice, I am definitely taking all the time in my day to learn these things, reading more books, attending webinars, listening to podcasts on all downtime, and taking all the free classes! I have learned a huge amount and very happy with my current knowledge in Real Estate, but am very excited to keep learning.

Stay safe!

Craig Curelop · Answer

Welcome to BiggerPockets @Leo Chun!

Hey, thank you for reading my book! Good to see young ones got interested with RE investing and I am glad that you are here in BP community! Keep on with your Real Estate education by browsing, reading, listening, building your network, completing your BP profile and connecting to members (which is a priority while you are here). Connect with other members esp in your target area, to learn from their success stories and experiences. I am sharing with you some of my initial recommendations and guidance for your study:

1. Subscribe to the BiggerPockets Money and Rookie Podcasts

2. Attend the FREE WEBINARS                3. Attend a Meetup in Your Area

4. Purchase the Beginner Books at store: How to Invest in Real Estate, Set for Life, The House Hacking Strategy                5. Peruse the forums! Ask questions! Answer Questions!

Good luck in your studies and best wishes for your future investments!

Keep safe/healthy, and see you around the site!

Best regards,

Leo Chun · Answer

I just added myself as an authorized user to my mom's credit card to start building up my credit. I'm going to be getting a credit card this year when I turn 18 and establish more credit. If I can't get my credit score high enough, my mom will most likely co-sign with me. Any suggestions to build it further or to build a better foundation for a loan?

Kenneth Donaghy · Answer

@Leo Chun How do you plan on qualifying for the loan? Do you currently have credit and strong employment history to qualify for a 400-450K loan? Will someone be co-signing with you? In college I knew parents who partnered with children to buy homes to rent to their friends. There is a lot to learn and gain in the process.

From experience, I have helped recent grads buy their first home to househack. Most recently I helped a friend/client buy a 3 bedroom condo, purchase price 480k. he price the master at 1300/mo, the small room at 900/mo and the mid size room at 1100/mo. He was nervous about renting it asap, he did he research knew what a good price to ask for rent, and started marketing the rooms. I think he had the master rented before we closed, and the small room within 5 days of closing, therefore he took the middle room.

I wouldn't be worried about finding tenants, there's many colleges to pull from to match your vibe. "Extreme Renovations" is another concern I wouldn't worry about, unless you are really bad at picking friends/roommates/tenants:)

If you do want to go this route of the college house hack, figure out first how you are going to get the loan.

You started your path early, so you have a great head start.

Cheers!

Dan H. · Answer

If you get accepted to UCSD, you have some intelligence.  You need to learn the market, but I will provide some key items.

San Diego has a very low vacancy rate.   Prior to Corona, I would think your fear of not finding tenants should not have been anywhere close to the top of the list.

Possibly at the top of the risk list is the price of homes.  Average price of a home is way higher than the $300K to $450K you are indicating.  You will likely find it challenging to get a 2 BR condo in that price range near UCSD.  If you go with a real high LTV loan (96.5% LTV is real high), even renting on a room by room basis will be difficult to not have huge negative cash flow.  Maybe you can balance this some by renting to students in the traditional school year and STR (short term rent) over the summer.  STRs have high expenses.  They take a lot of time.  This is either a lot of your time or paying someone for their time.

There is also a lot of risk related to Corona.  Ideally it is long over in almost 1.5 years.  Just realize this uncertainty can change the best considered plans and could very much change things going forward.

My view of your plan is that it works best is if you intend to continue to live in San Diego after 4 years of college.  This is because the property is likely to have negative initial cash flow.  It may not hit positive cash flow until year 4, just when you are graduating and may be leaving.  If you are not staying in San Diego, you then either have a long distance rental or you sell.  Commission to sell is typically 5 to 6% but total selling costs usually approach 10%.  You can see how this could consume much or all of the RE appreciation on such a short term hold.   So you would have negative monthly cash flow for most of the holding period and get little of the benefits of the appreciation.  in this option you may be better of to rent.

Different story if you plan to stay in San Diego 10+ years.  San Diego has a great track record of long term appreciation.  Lets say year 4 your rents have increased enough that you have a little positive cash flow, how do you think the cash flow would look by year 10?  Same for the appreciation.  lets assume no Corona and inflation is 3% but San Diego RE appreciation rate is 5%.  Not much appreciation value left for a year 4 selling that will consume close to 10% of the RE value.  By year 10, you are likely walking a way with a nice chunk of change when you sell.

Good luck

Going to college next year, planning on House Hacking. Any tips?

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