new investor looking to maximize first house hacking

[Khoa Nguyen]

Hello everyone,

I am new to the real estate realm and looking for advice. My goal is to start my real estate journey with house hacking. I currently work in health care profession so i plan to do mid term rental to nurse. i am currently sub-lease my apt so my rent is less than $500. I am debating whether it is worth it to buy a house (with 20% down) and rent out to the same tenant and get another tenant. I am currently living in Prescott Valley, Arizona. My thought process is that i am paying $1200 rent for a 2 beds 1 bath vs getting a $350000-$400000 3 beds 2 baths home with monthly payment of $2100-$2400 (PITI with 7% interest rate).

I figure that it will be better to rent for now since if i am to buy a house, i need to find a renter who willing to pay 900-1200 without factoring any capex, maintenance and vacancy. In addition my COC return is $0 instead of investing $70000 (20% of 350k house) into a saving account with 5% yield sound like a bad investment to me. Can some expert help me understand the idea why would it benefit to buy than to rent ? appreciate all of your advices and help.

p/s: i could potentially get a fixer upper for 280-300k and put in 20-30k to renovate (still a newbie at this aspect too), but it still do not worth it to buy in my opinion. 

[Dan Guenther]

Hey @Khoa Nguyen - welcome to the community! 

One of the best parts of house hacking is the ability to use a low down payment option to secure that first deal (0-5% down). It's also important to understand that cash flow is only one part of building wealth in real estate. You should also consider these factors: 

1) Loan Paydown - Every month a portion of your mortgage is going towards principal paydown (building equity). Whether you are paying it or your tenants are paying it, you are essentially paying yourself for future equity. 

2) Tax Benefits - This one is commonly overlooked. There are multiple tax benefits to owning vs renting, especially when a portion of the home is rented. You will be able to write off a portion of your house as business use which will allow you to deduct various expenses when it comes to tax time. 

3) Appreciation - This isn't one that I recommend making any purchasing decisions on however it's a bonus for investors and historically prices have only gone up even in the case of major market crashes. 

4) Rent Savings - I know you aren't paying much for rent but even with the $500/month rent, you would still be paying yourself $6000/year to own vs renting. This adds up in the grand scheme. 

5) Building credibility as an investor: Getting started sooner rather than later will allow you to build credibility as an investor. Once you have a few years of rental income on your taxes, your lending options will open up. You can also leverage your rental income and home equity to increase your buying power. 

Let me know if you want to talk more in-depth about the pros/cons of your situation!