All Forum Posts by: Ben Kagel

Correct, not much will cash flow. Welcome to Austin, I invest in the outskirts. 

@Ben Kagel I've helped numerous clients make the move to Austin and purchase house hacks, both SFH and multifamily. There is a lot to consider and happy to chat in more detail about the market. Austin is a tough market to cash flow, even with a healthy down payment, so househacking gives you the option of getting into a more expensive market (although not as expensive as yours) and reducing your living expenses. Shoot me a DM if you want to connect!

Quote from @Ben Kagel:

Is it too risky to execute on a deal that won't cash flow after I move out likely after a year? I'd probably be gambling on appreciation, refi after a decrease in interest rates, or forced appreciation / rent increase via doing a rehab the first year.

I think you should treat negative cash flow as a serious concern if you think it's likely you'd move out that soon. Forced appreciation and the other ideas mentioned of a short-term rental strategy and negotiating the purchase price are all solid ways to try to prevent negative cash flow. Do you have the option of staying in the house hack longer than a year if the numbers aren't looking good to move out? As you say, counting on appreciation or a change in interest rates amounts to gambling. Yes, it's more important to get in the game and learn than to hit a home run on your first property, but having to subsidize your first property from your W-2 income for a couple years if the gambling doesn't work out is tough. I would try as hard as you can to avoid that.

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” -- Benjamin Graham

Quote from @Ben Kagel:

Quote from @Sanat Bhandari:

@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine

It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in 

I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line

@Sanat Bhandari That's good to hear. How did you get comfortable enough to go through with a deal that didn't cash flow at first? Did you run the numbers on the sweat equity for future years? Or just figure it was good enough for now? I'm trying to avoid analysis paralysis but also don't want to get myself into a bind down the line.

When I started out, it was with the intention to have the rent cover the PITI without much consideration for cash flows down the line since it was a primary. I did run the numbers on sweat equity and realized that I could potentially cash flow down the line

Here's something to consider, as a house hacker, it's really hard to go belly up. The beauty of being a homeowner vs investor is that you can afford to pay more than investors by the virtue of better financing and the fact that you're buying a consumer product, not an investment. House hacking just combines the benefits of the two, investment returns + homeowner financing

This might be an unpopular opinion here but when it comes to a house hack, I always recommend getting started and thinking about investment returns as a secondary thought

Hey Ben,

I'm a new investor as well having just purchased my first duplex to house-hack in October 2022. My opinion is to not overthink it on your first property. The main thing is to get started. However, due to the current market that we are in, and with a lot of uncertainty, I would definitely stay conservative. Look for something in a nice neighborhood, that might not cash flow from the very start, but has a great chance to cash-flow in the near future once you move out and raise rents. Buying in the right area is key if you're looking to hold long-term.

Chances are in a market like Austin, it is going to be hard to cash-flow at the beginning with an FHA loan (due to the lower down payment), and better neighborhoods usually cash-flow less but appreciate more. Interest rates are not certain to fall within the next year and may stay about the same or even increase a tiny bit more. I would definitely pad any rehab estimates and budget for more than you think they will come out to. Using an FHA 203k loan may be an option for you as it allows you to pair the rehab costs with the first-time home buyer loan (though it can be a tricky process).

Make sure you are also negotiating on your purchase. Buyers now have the power to offer less and put in more contingencies like inspections. Some sellers are still trying to sell their properties at peak 2021/2022 prices. Offer knowing that the market could slide a bit and make sure you have a cushion for yourself. One of the things I negotiated that helped a lot was for the seller to pay all closing costs. If you can get this done, it also leaves you with more capital to use towards any necessary renovations, or to pay the full mortgage on your own until you can get a tenant in there. 

I wish you the best of luck and I hope everything works out for you, happy investing!

@Ben Kagel you explained your plan well. I lived in ATX for 8 years and loved it.  I'd suggest looking at Round Rock, Cedar Park, Budda, Huddo, etc.  Currently the ATX market is overpriced according to economics, which means in the coming years it could slow or drop in value (inflation adjusted that is).   That said, ATX & surrounding is a strong MSA, which is my metric for recession-proofing.  Maybe some of the surrounding ATX areas would qualify for a USDA 0% down loan. 

Two thoughts:

1) Consider using a renovation FHA loan, so you can wrap your improvement costs into your loan and save your cash?

2) Consider using Beyond House Hacking with a single family house.  This would give you your best chance at cash flowing, and having negative cash-flow is a sinister ship to sail.  The more cash flow the more cushion to absorb your learning curve and future economic surprises. 

@Ben Kagel As long as the property is in a good location and satisfies your primary home criteria, it won't be a bad idea to house hack it even if it doesn't cash flow as-is. If you're putting in sweat equity/forced appreciation into the deal, you most likely will be fine

It may be worthwhile having it as an AirBnb after you move out to boost your cash flows if that is something you'd be interested in 

I bought my first SFH house hack even though it didn't cash flow fulled rented as-is. I put a good amount of sweat equity into it and that resulted in it being a cash-flowing rental down the line