House Hacker Question: Paying the same amount owning vs. renting

[Benjamin Sulka]

Hey BP house hackers,

Actively making offers on house hack deals in my area and want to get your thoughts on something. 

Many of the properties in more desirable areas (and higher potential for appreciation) would allow me to pay just about the same that I am renting right now after considering every expense under the sun (PITI, vacancy, PM, capex, maintenance, etc etc). In my area, that number is $1,450.

These properties would be just about breakeven if we decided to move out after one year.

Considering all of the other benefits of doing that first deal, do you think it's worth it? Would have somewhere between $17-20k total into this deal. 

Super grateful for any insight. 

-Ben, aspiring multifamily house hacker

[Jeff Schemmel]

Acquiring an income earning property with high potential for appreciation for less than $20k out of pocket?  Sounds good to me.  If the alternative is wait 5 years for a down payment on something you don’t live in, you stand to likely gain substantially by moving on this decision now and collecting rent, principal pay down, appreciation, and tax benefits in those 5 years.  As long as your analysis is sound that is a decision that makes sense to me.  

[Drew McLoughlin]

Hey Ben I’m in the same boat, looking for my first 2-4 unit house hack (my number is closer to $2000 in the DFW market). For turnkey properties (given your $20k constraint) it may be difficult to break even on cash flow within 2-3 years. That’s what I’m seeing as well. Can’t control some of those variable (property taxes are killer here). Speaking for myself I’m just planning to have to live there for more than 1 year and make sure there is room to raise rents, for example spending a few thousand to bring a washer dryer connection to the complex if it doesn’t have one could be a great cash on cash return if you can raise rents maybe $50/unit on the next turn. 

[Lucia Rushton]

@Benjamin Sulka I, 100% support house hacking as an entry level into real estate investing. Your personal example is exactly why I like it.

As I was just my opinion, and not written by Ai

[Jake Andronico]

Quote from @Benjamin Sulka:

Hey BP house hackers,

Actively making offers on house hack deals in my area and want to get your thoughts on something. 

Many of the properties in more desirable areas (and higher potential for appreciation) would allow me to pay just about the same that I am renting right now after considering every expense under the sun (PITI, vacancy, PM, capex, maintenance, etc etc). In my area, that number is $1,450.

These properties would be just about breakeven if we decided to move out after one year.

Considering all of the other benefits of doing that first deal, do you think it's worth it? Would have somewhere between $17-20k total into this deal. 

Super grateful for any insight. 

-Ben, aspiring multifamily house hacker

Congrats Ben!! That's awesome. Rooting for you. 

If you can swing it and are willing to do what it takes to not lose the property if sh** hits the fan, then I would highly suggest purchasing in a more desirable area. 

It's a long term game, and that's a better long term strategy. 

Best of luck to you! 

[Anthony Swain]

Hey @Benjamin Sulka VERY soon to be house hacker,

MAN! I am rooting for you brotha. It sounds like you are very very close to your 1st deal. Personally, I am STOKED for you!

Anyway...

Here are my two cents. With these interest rates, if you can find a house hack situation that you are paying the same, slightly less, or I'd argue even slightly more, then I think it can be worth it for these reasons.

1) You will get to live in your preferred location. I think this gets down played, but getting to live in your desired location is a HUGE factor. Maybe you will have a closer commute to work, maybe you're closer to parks, favorite restaurants, interesting events, etc. The increase on your quality of life is hard to measure, but easy to feel. 

2) As you mentioned, APPRECIATION will most likely be higher in more desirable areas. As a house hacker, you'll benefit from this, especially utilizing leverage with a low down payment. For example, if you buy a $200k house with 5% down (10k) and the house appreciates by 5% (10k), then you get 100% of that equity increase. Year over year this can really add to your net-worth & equity position. 

3) If the property comes close to breaking even with you moving out, then it can still be a good deal. Interest rates will likely come down, so you can refinance to a better rate. On the other hand, if interest rates stay the same or go up, then you'll be happy you didn't wait around until they did. 

Rents will likely go up over time as well.

You can also get creative to increase the income by doing MTR, STR, rent by the room, etc.

4) Loan amortization will increase your networth over the next 5, 10, 15 years+. 

Keep at it Ben. So stoked to hear when you nail your first deal!

-Ant

[Benjamin Sulka]

Quote from @Jeff Schemmel:

Acquiring an income earning property with high potential for appreciation for less than $20k out of pocket?  Sounds good to me.  If the alternative is wait 5 years for a down payment on something you don’t live in, you stand to likely gain substantially by moving on this decision now and collecting rent, principal pay down, appreciation, and tax benefits in those 5 years.  As long as your analysis is sound that is a decision that makes sense to me.  

 Thanks for the response and I appreciate the confidence, Jeff!

[Benjamin Sulka]

Quote from @Drew McLoughlin:

Hey Ben I’m in the same boat, looking for my first 2-4 unit house hack (my number is closer to $2000 in the DFW market). For turnkey properties (given your $20k constraint) it may be difficult to break even on cash flow within 2-3 years. That’s what I’m seeing as well. Can’t control some of those variable (property taxes are killer here). Speaking for myself I’m just planning to have to live there for more than 1 year and make sure there is room to raise rents, for example spending a few thousand to bring a washer dryer connection to the complex if it doesn’t have one could be a great cash on cash return if you can raise rents maybe $50/unit on the next turn. 

 Drew, 

Thanks for your response and definitely in the same boat on the property taxes piece...

Great call out on making sure there is room to raise rents! That is why I'm focusing on some of these "higher end" markets because rents are more likely to continue to increase and the tenant base is really solid.

We should connect sometime! 

[Benjamin Sulka]

Quote from @Jake Andronico:

Quote from @Benjamin Sulka:

Hey BP house hackers,

Actively making offers on house hack deals in my area and want to get your thoughts on something. 

Many of the properties in more desirable areas (and higher potential for appreciation) would allow me to pay just about the same that I am renting right now after considering every expense under the sun (PITI, vacancy, PM, capex, maintenance, etc etc). In my area, that number is $1,450.

These properties would be just about breakeven if we decided to move out after one year.

Considering all of the other benefits of doing that first deal, do you think it's worth it? Would have somewhere between $17-20k total into this deal. 

Super grateful for any insight. 

-Ben, aspiring multifamily house hacker

Congrats Ben!! That's awesome. Rooting for you. 

If you can swing it and are willing to do what it takes to not lose the property if sh** hits the fan, then I would highly suggest purchasing in a more desirable area. 

It's a long term game, and that's a better long term strategy. 

Best of luck to you! 

 Jake,

Totally agree with you man. Definitely a better long term strategy.

More likely for rents to continue to increase, higher likelihood of appreciation, and better tenant base.

Great to hear from you. Appreciate all your contributions to the forums! 

[Benjamin Sulka]

Quote from @Anthony Swain:

Hey @Benjamin Sulka VERY soon to be house hacker,

MAN! I am rooting for you brotha. It sounds like you are very very close to your 1st deal. Personally, I am STOKED for you!

Anyway...

Here are my two cents. With these interest rates, if you can find a house hack situation that you are paying the same, slightly less, or I'd argue even slightly more, then I think it can be worth it for these reasons.

1) You will get to live in your preferred location. I think this gets down played, but getting to live in your desired location is a HUGE factor. Maybe you will have a closer commute to work, maybe you're closer to parks, favorite restaurants, interesting events, etc. The increase on your quality of life is hard to measure, but easy to feel. 

2) As you mentioned, APPRECIATION will most likely be higher in more desirable areas. As a house hacker, you'll benefit from this, especially utilizing leverage with a low down payment. For example, if you buy a $200k house with 5% down (10k) and the house appreciates by 5% (10k), then you get 100% of that equity increase. Year over year this can really add to your net-worth & equity position. 

3) If the property comes close to breaking even with you moving out, then it can still be a good deal. Interest rates will likely come down, so you can refinance to a better rate. On the other hand, if interest rates stay the same or go up, then you'll be happy you didn't wait around until they did. 

Rents will likely go up over time as well.

You can also get creative to increase the income by doing MTR, STR, rent by the room, etc.

4) Loan amortization will increase your networth over the next 5, 10, 15 years+. 

Keep at it Ben. So stoked to hear when you nail your first deal!

-Ant

 Ant,

Really appreciate this response and it gives me confidence that my thought process isn't off. 

Thanks for emphasizing some of those other benefits to my overall net worth as well as lifestyle considerations as well! 

Looking forward to chatting with you on the phone, brother!

-Ben

[Josh Silvester]

Ben, scrolling through some of your posts has given me a ton of confidence in my similar situation. I’m in the red hot market of CT and just went under contract today for a duplex near a college. My plan is to rent to students to try and get top dollar for rent. I had to offer 19% over asking to get this under contract and after renting 1 of the units, I’ll be spending a little over what I currently pay in rent. Of course I’m nervous that I’m pushing it too much and contributing to this insane market but at the same time I know it’s a long term play and once I can rent both units, the cash flow will be there along with all the other benefits of owning that you mentioned.