More expensive the better?? House Hack

[Nick Scullin]

Hi guys!

So I've been thinking about this for a little bit and wanted to get some feedback from others. I want to start with a house hack here in the Philadelphia suburbs (as this is where I currently work my full time job). Specifically MontCo. Looking on the MLS (aka Zillow/realtor) I've been able to see duplexes run anywhere from 250-400k (generally). So my question is, if the math works for a good deal and the finances are in place, would you go for the more expensive deal? My thought being that appreciation (the icing on the cake, not banking on it) would be better, theoretically rents higher and therefore higher loan paydown. So if finances and the math on a property make sense and are taken care of, would you go for the more expensive property? This is assuming a low down payment for an owner occupied loan (~5% maybe even 3.5% FHA).

Now I understand there are PLENTY of other factors going into a deal such as looking at the market (crime, neighborhood class, Schools, unemployment, population growth), the tenants you get, what rent is actually going for, maintenance on the property, age of the property and much much more. I'm just asking a hypothetical dumbed down question.

My current opinion is that more expensive is better since it's more leverage starting out and the appreciation will result in more money and the loan paydown should be better. Or am I naïve? Let me know i'd love to hear your thoughts!!

[Greg Weik]

@Nick Scullin I actually would have the opposite concern with lower rental rates.  The people in the Denver area (and, I suspect, most metro areas) who can afford $2200-$2800 tend to have more stable jobs. It is a really important part of the screening process - knowing what you're looking at when verifying income and employment. 

One of my tenants is a truck driver (pretty stable, at least before the autonomous trucks go online!), one couple works in insurance and property management (two of the most stable industries), and another is a couple with a brother where all 3 have income.  

Those are just my personal properties, but in our managed portfolio of other people's properties, the small handful of unpaid rents are from self-employed tenants and a guy who worked in construction.  

Just be careful also, in Colorado and probably other states, you can't discriminate based on the source of income.  If someone comes to us as a server in a restaurant, we can't ask for a larger security deposit even though we know their source of income is higher-risk.  Like a lot of bad legislation, this was designed to keep landlords from avoiding Section 8 tenants, but now that we've seen what a pandemic can do to certain industries, that could make finding the right tenant more difficult.