Advice Request for First Time Homebuyer Looking to House Hack in Pittsboro, NC

[Rob Trufant]

Hello everyone,

I am fairly new to real estate and just graduated from college at 22 yrs old with a job in Pittsboro, NC, but have been listening to BP and Rookie for awhile now. I am currently looking at homes, some fixer uppers and some new construction. Generally, this post is asking for guidance regarding knowing what a good deal is, as well as getting some estimates for costs such as insurance, as well as other questions such as ease of finding tenants for room-sharing in a Single Family Townhome. One property I am currently looking at is a new construction townhome - 3 bed, 2 bath, and 1900 sq ft for a purchase price of $360,000 (Roughly $2600/month mortgage payment). I have checked rental comps on the BP calculator and have found that homes in this area with these stats can rent for around $1100, but this is nowhere close to the required mortgage payment (Realistically I think I could have 2 tenants paying at least $1000 per month each, though this calculator has me thinking otherwise). I This new construction community also has seemingly steep HOA fees of around $350 per month all-in. I have also used the BP rental calculator and there seems to be a negative cashflow of $2600 per year, though this may be skewed due to conservative inputs or other factors, which concerns me. Any guidance in this process would be greatly appreciated. I have around $15,000 in the bank which could afford a 3.5% down-payment, but closing costs and the first few months rent could be a stretch as my job hasn't started yet (The home would still be under construction so its possible I could achieve W2 income before actually paying a mortgage?). Fortunately, my career allows me to spend $2600 per month on rent in the event I can't find any tenants, but it would be seriously stretching my wallet without being able to save (This isn't including HOA, insurance, or any other fees- strictly mortgage payments). Should I look for something cheaper, or consider renting an apartment for a year or two? I can't find any other homes that are cheap enough and within a reasonable commute time of my job and am beginning to think I will have to rent for a few years, not the worst thing in the world but not ideal either as I realize the value of real estate investment. In general I would appreciate any advice in this endeavor, and any other help regarding financing as a first time home buyer in an owner occupied space in NC would be great as well. Would be happy to provide any additional information as needed. Thank you, and I look forward to continue learning from this community every day!

[Ryan Thomson]

Quote from @Rob Trufant:

Quote from @Ryan Thomson:

@Rob Trufant 

I wonder if your criteria may be a little unrealistic for the current market.

In Colorado Springs (and most other markets) House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

If you are paying close to what you pay in rent to cover PITI and expenses then owning a house is a much better financial decision than renting.

Thank you for this reply! I will be sure to re-run my numbers based on this information. Just did another report and found it to come out around $3600/month for a $400k home after HOA, utilities, CapEx, and more costs. After finding more accurate comps a rough figure of $2200 arose for whole house rental in the area. Ultimately I would like to put what I would pay in rent into equity, as well as have the freedom to move and house hack another property after 2-5 years. This negative cashflow, which I realize is fine for house hacking, could hurt my freedom to move long term as I would be forced to cover the difference from rent collection, however the question arises: Is it worth subsidizing $1400 in mortgage payments so that tenants can pay me $2200 once I move out? You also mentioned write offs, I am not sure how this factors in specifically and wonder if you could speak to that, as well as how much I will pay in taxes for rent collection. Thank you for your reply that gives me a lot of food for thought!

 @Rob Trufant I just DM'd you a great blog on my website. It talks all about why house hacking is a great investment even without cashflow and why you shouldn't give up one great investment because you can't immediately scale to the next one.