House Hack in LA/NYC or Buy Out-of-State First? 🤔🏡

Lender · Boston, MA · Member since 2021 · 125 posts · 64 votes

I can't personally speak on house hacking NY/LA but I think your concerns about landlord laws there are very valid. There's still lots of markets that cash flow and there's a ton of turnkey inventory available outside of those states. Remote investing is all about having a good team on the ground.

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Steve T.

OP

Member since 2022 · 3 posts · 2 votes

1y

Quote from @Michael Wyatt:

I can't personally speak on house hacking NY/LA but I think your concerns about landlord laws there are very valid. There's still lots of markets that cash flow and there's a ton of turnkey inventory available outside of those states. Remote investing is all about having a good team on the ground.

Thanks for the reply Michael. I was planning to buy a distressed property and build equity in it with repairs/rehab, rather than pay top dollar for a turn key. Do you think as a first time OOS investor I should look for turnkey deals instead?

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Michael Wyatt

Lender · Boston, MA · Member since 2021 · 125 posts · 64 votes

1y

I think it depends how much time you want to spend on it. Lots of property management companies sell turnkey flips and also have realtors that can find you value add properties, and they probably have contractors to recommend and even may handle the project management for you if you're going to use them to manage the property.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

1y

@Steve T.

Make me under 25 again and I'd look to acquire a 2-4 unit property with an FHA low-down payment mortgage.

I'd also look into using an FHA 203k renovation loan, allowing me to buy something unqualified for a standard mortgage, which would weed out a lot of competition and push the price lower.

To maximize my cashflow and gain landlording experience, I'd do STR and MTR in the other units, as well as the other bedrooms in my unit. I'd even consider finishing the basement, just well enough for me to live down there, so I could rent out ALL the units.

I'd save all my cash and look to refi the property in 1-2 years out of the FHA mortgage, so I could use it again if necessary. Depending on how close I was to having 20% equity in the property and being able to avoid PMI, I'd consider using some of my cash to pay down the mortgage when I refinanced. Otherwise, I'd save my cash for the next acquisition.

I’d also be posting on every social media platform and telling everyone I knew that I was looking for more real estate deals. I’d aim for low downpayment land contracts and lease options.

After refinancing out of the FHA mortgage, I'd evaluate if I wanted to repeat the 2-4 unit FHA 203(k) process again or if I had the 20% down to target 5+ units.

Good luck with whatever you decide to do!

[email protected]248-209-6824

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Jared Smith

Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes

1y

@Steve T. I don't think you need to be in an all or nothing strategy here. If you are interested and willing to house hack it is a good way to gain experience dealing with some of the issues you would face as a landlord, but definitely subdued since you are also living there.

An out of state turnkey option would be easy to do in parallel with this since a true turnkey option should not take much, if any effort other than selecting the right team in a market that can help you reach your goals.

We work with lots of clients that are high earning professionals and are looking to start investing in real estate and we provide a simple solution that doesn't take away from their main focus of their high earning job. The markets investors like you want to live in and invest in are often two totally different places, so don't limit yourself yo a single plan.

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Nadeem Alamgir

Real Estate Agent · Member since 2023 · 831 posts · 577 votes

1y

Hey Thomas, you’re in a great position so far. Remote work gives you flexibility, high income, and you’ve set aside capital.

I grew up in NYC, so I get where you’re coming from. Strict landlord laws and high prices make house hacking tough, especially if you’re planning to leave.

Since you’re open to out of state investing, there are plenty of cash flowing, landlord friendly markets worth considering. It’s not for everyone, but with the right team, an agent who knows the market, a solid property manager, and good contractor connections it can be a great way to your porfolio.

For example, Cleveland is affordable, has strong rental demand, and offers solid cash flow. A turnkey property typically costs $100K-$300K, and landlord laws are much more investor friendly. Of course, Cleveland is just one option, plenty of markets offer similar benefits, so it depends on what you’re looking for.

Your hybrid plan is a smart approach though. Living in LA first will help you make a more informed decision on where to buy, while exploring out of state investments could be a great way to build your portfolio. Best of luck!

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Steve T.

OP

Member since 2022 · 3 posts · 2 votes

1y

@Drew Sygit thank you for the very thorough response. Great point on STR/MTR to possibly cash flow in a high-appreciation low-cash-flow market like Los Angeles. I had a few questions.

For the FHA loan, if I am able to afford the 20% down from the get-go, is there an advantage to doing FHA instead of conventional financing? The interests rate seem comparable. If I pay the 3.5%, I need less initial cash, but pay for it with high higher monthly payments eg PMI. Is the goal here to increase leverage so I have more cash available for out of state investing?

For FHA 203k renovation loan: if the house is unlivable, it does not qualify for conventional financing with a mortgage. In this case, I would need to find some private lender that does unconventional financing (higher interest rate) or I could use an FHA 203k loan. Is that the main advantage of this to get a lower interest rate for the FHA 203k loan? If I can pay the repairs with cash any reason not to do that?

For refi the property after 20% equity to avoid PMI, related to first question, if I could avoid this from the get-go, any reason to delay it?

Low downpayment & lease to own are interesting ideas, would those be applicable to the first house hack (ie a separate option from the FHA 203(K) loan)?

For refinancing and switching to 5+ units, would you suggest this in a low-cash-flow high appreciation market (e.g., LA) because of economies of scale the building may cash flow? Or if you are thinking out of state, depending on the area, some 5+ units I would already be able to put 20% down.

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Drew SygitBusiness Member

Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes

1y

How fast do you want to grow?

How good of a "deal" do you want to acquire?
--- The worst condition a property is in, the fewer buyers interested, so the bigger opportunity it respresents.

The FHA 203(k) loan is designed for owner-occupied fixer-uppers!
--- EXAMPLE: house price $150k, needs $50k of work, After Repaired Value (ARV) is at least $200k. The 203(k) will allow you to put down as little as 3% on the Purchase+Rehab amount of $200k. You use $50k of the loan to do the repairs.

If you have 20% down + rehab money, then you can do a FNMA HomeStyle program.

The FHA 203(k) is a great BRRR tool.

We always recommend starting local when possible. You will learn so much more being hands-on! Going OOS involves a LOT more trust & risk with whatever team you put together.

We like to think we provide great services for OOS investors, but have seen many horror stories from others.

[email protected]248-209-6824

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Rick Albert

Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

1y

I'm a 2x house hacker in LA and a case study in the Bigger Pockets Book, "The House Hacking Strategy." I also invest out of state.

The concerns you bring up are valid. Keep in mind studies have been made to where rent control actually lowers vacancies and increases rents. For example I have a unit in Nashville that has been sitting on the market for months. My ADU here in LA rented in less a week (the tenant moved in three days after the painting was done). I had multiple applications and inquiries were still coming in.

Also keep in mind your goals. An argument can be made that you build wealth FASTER with higher priced properties. You have larger loan buy downs and the appreciation dollar amount is higher. For example a 3% appreciation on a $1,000,000 asset is $30,000. That same 3% appreciation on a $100,000 asset is $3,000. The same rule applies to rising rents. And because you can put so much less money down, your Cash on Cash Return is even higher. You put 3.5% down and you almost make up your down payment in one year. Of course values fluctuate and this is over a long period of time.

What LA and NY also have that other markets may not is high paying jobs mixed with no land to build more housing. So even though there may be a decline in population, it almost doesn't matter because there isn't enough housing to go around anyways. They just talked about this in the latest BP podcast episode.

You could also do what I did and what some of my clients have done, which is we use our LA properties as a vehicle to buy more properties. We use HELOCs because of the larger appreciation and use that as down payments. With the exception of the property I'm about to enter escrow on, I haven't done a down payment of my own since 2015. Between a 1031 Exchange, HELOCs, and a partnership, I'm up to 15 doors including my personal residence. To be fair I did ride the low interest rate and high appreciation train, but you get the idea. You can also do a different strategy than what I did to get started.

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Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

1y

@Steve T.

i'd house hack first. 'cash flow' on cheap properties in the midwest has been way overstated. in that, there mostly isn't any for the first several years at an absolute minimum. or never, if purchased incorrectly.

today's random example of how chasing cash flow can go sideways:

Sell at a loss or rent at a loss

also, you mentioned buying a distressed property and rehabbing it. that is a perfectly fine strategy - it's just very difficult to do at a distance.

as others have said, house hacking if done right shouldn't close off other strategies.

hope this helps - trying to be realistic not discouraging.

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Austin WolffPro Member

Rental Property Investor · Los Angeles, CA · Member since 2024 · 139 posts · 134 votes

1y

If you can afford to house-hack where you'd like to live, I'd 100% recommend that first.

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Marc RiceBusiness Member

Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2018 · 2k+ posts · 1k+ votes

1y

Quote from @Steve T.:

New to REI & BP, and debating my first move.

My Background:

30, single, no kids, no property, high income, fully remote worker
$300K to allocate toward real estate (+ $100K/year after tax)
Currently renting in NYC but planning to move back to LA (hometown) in summer 2025 or the following year
Tired of paying rent and want to start building equity

My Dilemma:

1️⃣ House Hack in NYC – Stay a couple more years here, buy a small multi-family now and offset costs with rental income. Concern: NYC’s strict landlord laws, high purchase price would tie up capital & be in less desirable area, would likely not cash flow (not good when I leave)

2️⃣ House Hack in LA – Move back, get a small multi-unit, and offset my mortgage with rental income. Not expecting cash flow, but at least my housing cost would be similar to renting. Concern: LA’s landlord laws, headaches from self managing, a good deal may still have tenants occupying it, if I ever leave it's an alligator so it costs more than the income it makes

3️⃣ Out-of-State Rental – Get skin in the game sooner by buying a cash-flowing property elsewhere. Would get a property manager. Concern: Remote investing as a beginner, higher risk. (I have read the Long-Distance Real Estate Investor, so have some ideas)

4️⃣ House Hack Anywhere - Due to remote work, I could find a market that has a profitable house hack, get great financing. Just need to spend a year somewhere I may have no desire to live.

Hybrid Plan:

Keep researching out-of-state markets and act if a great deal appears.
Move back to LA, live in Airbnbs in to get a feel for neighborhoods (open to suggestions), and house hack once I find a deal.

Would love to hear from those who’ve house-hacked in LA or NYC or started with out-of-state rentals—what would you do in my shoes? 👀

If you house hack in LA or NYC you'll need to rent out the bedrooms on top of the other units to have a chance of not losing too much $ every month.

[email protected]614-363-2787

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Becca F.

Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes

1y

I agree on the house hacking. I don't know the NYC market but I agree that strict landlord laws are a concern.

I invest in the Bay Area in one of the most tenant friendly cities. So far I haven't had any issues with tenants. Tenants are higher income and even with rent control, my multi-family is doing well. When a long term tenant moves out, you can charge market rate rent. Single family isn't under rent control. For all the terrible things people say about investing in CA and yes the being not landlord friendly is true, we have great appreciation and generational wealth has been passed on. If was so horrible, every CA investor would have sold and bought OOS. If you need to get a tenant out (if selling the property or you want to move in yourself), you may need to pay a relocation fee (depending on the location this amount varies). We also have Proposition 13 and our property taxes go up a max of 2% a year (unless you do a significant renovation causing the property to be re-assessed) - some of the Californians who left for Texas have seem massive property tax increases and sold their appreciating home here.

I invest OOS and my Class C Indiana homes (sold one to cut my losses) "cash flow on paper" are way more a headache than my CA properties. I'm -$300 to -$500 most months from constant repairs. My Class A Indiana home is doing well with appreciation, great tenant. My property taxes go up significantly, 17% on both homes for 2024.

If you go OOS look at the asset, nice suburb with good schools with properties that appreciate. Visit that area and do lots of research - talk to local investors who will tell you the positive and negative and property management companies and someone unbiased who isn't trying to sell you a home.

I think LA is a great market and many of my CA investor friends live in SoCal and invest locally as well as OOS. I wouldn't buy near any wildfire areas if you move to LA (or elsewhere in CA).

I really like your idea of staying in AirBnbs in LA to get to know the areas. Good luck!

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House Hack in LA/NYC or Buy Out-of-State First? 🤔🏡

House Hack in LA/NYC or Buy Out-of-State First? 🤔🏡

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