House Hacking Babble

[Ryan H.]

I bought a primary home (condo) in Portland, Oregon in 2019.  I've since refinanced and have a 30-year loan on it at 2.75%.  Expenses are about $1600 per month, and there is no income.  It's a small space and I'm not willing to house hack here.  Although I really don't want to move, I'm at least exploring on paper what it would look like to sell my condo and purchase an owner-occupied duplex to house hack in.

My question is whether this really worthwhile?  If I take the money from the sale of the condo and use some or all of that as a down payment on the duplex, am I any better off?  It seems to me that with home prices as they are in Portland, and interest rates where they are, I'd probably have at least $1600 per month still going out after offsetting my total expense for the duplex with the income gained from renting out one side of the duplex.  I could also keep my current condo (funding the down payment for the duplex via existing savings) and rent it out, but it would probably cash flow negative.

To come full circle, what if I just I remain where I am and continue purchasing new cash-flowing rentals out-of-state (of which I already have two)? Although I could get a low-down payment (as a percentage of the purchase price) FHA loan for an owner-occupied duplex here in Portland, I could also put very little down (in dollars) for an out-of-state rental property.

Curious to hear your thoughts!

[Scott Trench]

I think that rather than a "house-hacking bubble", you are experiencing the "lock-in" effect. 

Essentially, you have all this equity in your home, but to really tap it, you need to sell it, and then redeploy it. The problem is that you'll be swapping out your existing loan at 2.75% with one at 6-7%. Clearly, that's bad math. 

I think it will make a lot more sense for many homeowners and landlords to keep what they have (financed at low interest rates) and sit for a long time, than to redeploy with current market conditions. 

This is my plan. I will probably purchase a home and additional investment properties with huge down payments, or much more cash, because the benefits of leverage are being outweighed by the high interest rates. 

It all comes down to what you believe. But, I think your instincts are good, personally.

[Caleb Brown]

I would continue OOS investing. Tap into your equity. It doesn't make sense to get rid of your 2.75% interest rate for a higher one. 

[Rick Albert]

A couple of things to keep in mind:

1. Oregon has statewide rent control. I don't know the nuances of it but that now has to be factored into your business strategy for investing in the state.

2. Interest rates are what they are. If the numbers work the numbers work. You just have to analyze accordingly.

3. How is the HOA? Are they a pain?

4. Can you apply the law of averages. For example you take a loss on the condo but make it up on the house hack. Oregon rents almost doubled from 2020 to 2021 from what I saw online. Maybe there is a longer term play to consider (assuming you are comfortable with the risks).

[Kelly Asmus]

Hi @Ryan H.

The other option is possibly a HELOC on the condo if you want to tap the equity to buy something else.

An owner occ duplex here in PDX is at least $500k, yes rents are strong but it all comes down to the numbers. What makes the most sense for you, how much do you want to manage and what's the goal -cash flow, equity gain, or both? 

I own single family rentals and I keep on top of the rents every year and adjust as necessary so I don't get behind. I like investing here in our market, as long as it pencils, because I know I can get both cash flow and equity gain. Many out of state markets have much, much, cheaper homes, but the equity gain is much, much lower. So all depends on what your goals are.

DM me if you want to discuss more. 

[David Mount]

Quote from @Ryan H.:

I bought a primary home (condo) in Portland, Oregon in 2019.  I've since refinanced and have a 30-year loan on it at 2.75%.  Expenses are about $1600 per month, and there is no income.  It's a small space and I'm not willing to house hack here.  Although I really don't want to move, I'm at least exploring on paper what it would look like to sell my condo and purchase an owner-occupied duplex to house hack in.

My question is whether this really worthwhile?  If I take the money from the sale of the condo and use some or all of that as a down payment on the duplex, am I any better off?  It seems to me that with home prices as they are in Portland, and interest rates where they are, I'd probably have at least $1600 per month still going out after offsetting my total expense for the duplex with the income gained from renting out one side of the duplex.  I could also keep my current condo (funding the down payment for the duplex via existing savings) and rent it out, but it would probably cash flow negative.

To come full circle, what if I just I remain where I am and continue purchasing new cash-flowing rentals out-of-state (of which I already have two)? Although I could get a low-down payment (as a percentage of the purchase price) FHA loan for an owner-occupied duplex here in Portland, I could also put very little down (in dollars) for an out-of-state rental property.

Curious to hear your thoughts!

 One thought that hasn't been brought up yet (and this was my experience) --> You could just stay where you're at for now, and then as life changes and if/when you get married, at that point you'll probably want to buy a bigger place and will have the cash to do so. By that time, you may be able to rent out and cash flow your condo while living in a townhouse or single family home once you have 2 incomes. 

This isn't the immediate card to play, but it is worth thinking about as you consider your life vision over the next 2, 5, 10 years. 

I hope that helps!

[Ben Rezac]

Question for you... do you know if your loan is assumable? Meaning, the buyer of you condo can, for lack of a better term, "take over your payments." They would need enough cash to to buy out your equity, but it could be something to look into. Your agent can help you out with that, or let me know and I can help as well. I am a BP Featured Agent here in Portland and I specialize in house hacking. 

And maybe look for a single family home that your can convert to two units. Duplexes usually come with at least one set of tenants and you don't want to inherit someones headaches...

DM me and I will send you some properties that would work well.