Buy a house-hack now vs buy during next recession?

[Eric Li]

Hey everyone,

Last year, I started looking at multifamily property in Oakland to house hack so I could live cheaply / free while building equity. While the cash flow and numbers can work with the right property, I think a recession is 1-2 years away, so buying now could have some drawbacks since I only plan to stay in the area for ~5 years max.

Below is how I'm thinking about it, but what do you think? Am I off base, have I missed something?

To test my thinking, I created a simple model that projected total cash flow and equity over 5 years if I:

1. Bought a good, cash-flowing MFH now and recession hit in 2019
2. Waited and bought an MFH in 2019 during a recession
3. Waited and bought an MFH in 2020 during a recession

The model assumes that a recession results in a 10-20% drop in housing prices which rebound over 1-2 years. If I don't buy, I would rent for $1300-$1400 / mo by living with a roommate (what I actually do now).

Based on the model, I think waiting to buy makes sense for a few reasons:

• Buying during a recession is 15%-40% better from an equity and cash flow perspective when compared to buying a deal right now. This is driven by better rent:price ratios during a recession, not buying high and going through the rollercoaster of house value fluctuation, etc.
• I can afford a house in a better location once house values fall in a recession

Obviously, waiting to buy obviously only works if I am still employed and can get a mortgage approved in a recession. I think I can make that work given my work situation and how much I can save each month to meet higher down payment requirements when lending tightens up.

Thanks in advance for your thoughts!

Eric

[Nathan Platter]

Hi @Eric Li,

Mentality: You and I are very much alike; you are very analytical, which is a gift, but it also can trick you into thinking you can outsmart the future and mathematically win at investing. The Cure for analysts like us is to take action after crafting one plan and sticking to it. Now matter what, set your plan with (on this date, when values going down 18.785%, when I have $x,...) and then stick to the plan.

Economics: A recession is a good time to buy discounted properties, but it's also a good time to be a Holder. Buyers that over-leveraged themselves are now pushed into the renter's market, increasing demand but supply is stagnant, increasing the prices, which in turn increases the value of your rental. There are two sides to every coin.

Potential Plan: Let's pretend you don't wait and buy something today that cash flows or breaks even. If your property value drops 20% in 2019, your loan is locked in and is still being partially paid off monthly. Sure you can now say you 'overpaid' but you have your Househack and life's dandy.

You're thinking very intelligently, just remember to take action, my friend. That's the best thing I ever did.