Townhome Rental or HouseHack

[Adam Pervez]

Hi All,

I am currently under contract for the following property: https://www.zillow.com/homedet...

I managed to get a price accepted under list but with interest rates and what the rent in that area would go for, I would still be in the negative. Now I know I should be looking long term but I believe that if I am having to pay more than what my income would be, I have a liability. I am looking into other renting options for this property such as air bnb or renting travel nurses and other corporate personnel. I just wanted to ask my fellow BiggerPocket Members what you have been doing during these times with high interest rates on rentals. Are you looking into other financing options?

If you have more questions about this deal, let me know and I'd be happy to provide more detail. 

Feel free to share any of your stories!

-Adam

[Jeff Costa]

Are you still in the due diligence period and getting cold feet? Or are you firmly under contract and must perform? I'm going to assume the former.

The answer is: it depends on what your goals are. If cashflow is what you are after (based on your comments), you may be cash-flow negative for some time. If you can stomach that (paying INTO the property each month), then move forward. If you are buying for appreciation over longer periods of time, then you must, by definition, be comfortable with negative cash flow. In both scenarios you seem to have purchased a liability in the short-term. In the long term, rents go up and so does appreciation, which helps offset the negative cash flow.

[Adam Pervez]

Quote from @Jeff Costa:

Are you still in the due diligence period and getting cold feet? Or are you firmly under contract and must perform? I'm going to assume the former.

The answer is: it depends on what your goals are. If cashflow is what you are after (based on your comments), you may be cash-flow negative for some time. If you can stomach that (paying INTO the property each month), then move forward. If you are buying for appreciation over longer periods of time, then you must, by definition, be comfortable with negative cash flow. In both scenarios you seem to have purchased a liability in the short-term. In the long term, rents go up and so does appreciation, which helps offset the negative cash flow.

 Hi Jeff,

I have begun my due diligence period. I am looking to hold long-term rentals. My goal is not really appreciation in the property but to eventually cash flow. My goal is to house hack; ideally, I am looking for MF. I am looking into a townhome only because of the area I am in (Charleston), and the property's location is very desirable.Based off the rent and the mortgage I would have to pay, not taking into account any operating expenses, I would still be paying around $800.00 a month even fully rented with a tenant. My goal is to keep it as a long-term rental. I am fine being under but I wanted to get some feedback on how people would approach this. This would be my first rental. 

[Jeff Costa]

Quote from @Adam Pervez:

Quote from @Jeff Costa:

Are you still in the due diligence period and getting cold feet? Or are you firmly under contract and must perform? I'm going to assume the former.

The answer is: it depends on what your goals are. If cashflow is what you are after (based on your comments), you may be cash-flow negative for some time. If you can stomach that (paying INTO the property each month), then move forward. If you are buying for appreciation over longer periods of time, then you must, by definition, be comfortable with negative cash flow. In both scenarios you seem to have purchased a liability in the short-term. In the long term, rents go up and so does appreciation, which helps offset the negative cash flow.

 Hi Jeff,

I have begun my due diligence period. I am looking to hold long-term rentals. My goal is not really appreciation in the property but to eventually cash flow. My goal is to house hack; ideally, I am looking for MF. I am looking into a townhome only because of the area I am in (Charleston), and the property's location is very desirable.Based off the rent and the mortgage I would have to pay, not taking into account any operating expenses, I would still be paying around $800.00 a month even fully rented with a tenant. My goal is to keep it as a long-term rental. I am fine being under but I wanted to get some feedback on how people would approach this. This would be my first rental. 

This is just the opinion of an Internet stranger, but starting out your REI journey with a non-cashflowing townhome feels a bit FOMO. The fact that you are not accounting for expenses is also problematic. Do you know what the reserves are for the condo community (as that could also impact your expenses)?

Condos are the first properties to lose value and last to recover in a market cycle. The HOA are often harder on investors, and can limit your operations.

You might be better served buying a duplex to house-hack that is cash-flow positive with an FHA loan. It might not be as sexy, but it gets you started Your first REI experience should not be cash-flow negative, as it might be your last. 

[Joshua Messinger]

Hey @Adam Pervez! 

If you already know that the property will be in the negative I believe this is a surefire sign for you to walk away and keep looking for more inventory to come up (there's always more fish in the sea!). At the end of the day what really matters is cash flow. Without it, you are going to be taking on an extra rent payment instead of a property that is generating you cash every month! 

If you ever need help with anything I'm here! Please don't hesitate to reach out! 

-

Josh