House hack vs rent + single family - in a conundrum...

12 Replies

Hi there! My family wants to move to a location that is closer to our work. Right now I have about an hour commute in the morning and sometimes more in the PM. My wife has about a 30 minutes commute to and from work.

We are looking at locations that gets my wife about a 10 minute commute and mine about a 20 minute.

Here is the conundrum:

Do we house hack and sell our current single family home OR rent it out and move into another single family home. I know we could rent it out and house hack at the same time, but I am a noob to real estate investing and would like to go slow... not 2 real estate investments at once...

  • Option 1: Selling current single family home + house hacking:
    • If I go this route I will need to sell the single family home we are in now. We will make about $15,000 from it and that would help with the down payment for a Duplex closer to our work. We would live in half the duplex and rent out the other half. This would also give me experience in the REI game
  • Option 2: Renting our current single family home + moving to another single family home:
    • This option would allow me to get experience with renting Single Family homes. The home that would be rented however, based on the BiggerPockets calculator, has a -$111 cash flow and -15.87% cash on cash ROI. With that said, my family members are saying it's still worth renting it out because of the tax benefits + equity growth.

What would you do? Any recommendation on renting the current home with the negative cash flow and cash on cash ROI just for the tax benefits? I know house hacking is one of the "best ways" that is recommended for first time Real Estate Investors.

Would love to hear any opinions and advice for my situation.

Personally, negative cash flow is never worth the equity pay down and taxes. House hacking can be much more lucrative because you're mitigating/eliminating your own housing payment as well as potentially earning cash flow.

If the market crashes, and you're stuck paying a lot of money to hold onto that home it won't feel like an investment then.

Does your family invest in real estate? Or are they speaking from the mindset of a fearful non-investor?

@David Pere Thank you for your advice! My family member giving me the suggestion actually has millions in real estate investment. She said it would be worth the tax deductions alone even if its a slight negative cash flow. The big thing she mentioned is that it would give us experience with REI (getting our toes wet) as well as the tax deductions alone are worth it.

I've calculated the tax deductions but I'm not really good with that stuff. I'm not sure how it will overall affect our tax return in the end. Will the roughly $18,000 extra in tax deductions be able to offset a -$100 to -$150 cash flow? She says go for it but I wanted more opinions.

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@Josiah, tax advantages are probably worth it, as long as you're comfortable with the associated risk of owning an "investment" that loses money, and hoping the market holds up. Ultimately that is your decision. You just need to determine your risk tolerance, make a decision, and execute.

Originally posted by @David Pere:

@Josiah, tax advantages are probably worth it, as long as you're comfortable with the associated risk of owning an "investment" that loses money, and hoping the market holds up. Ultimately that is your decision. You just need to determine your risk tolerance, make a decision, and execute.

Ya... wanted to see if anyone else has been in a situation, or if the tax advantages really outweigh the risk in any substantial way. Kind of asking "what would you do in this scenario?" kind of question.

@Josiah Sia

Disclaimer: I am a newbie.

I would go with option 1. Unless the home you currently live in has very good appreciation potential I would cash out. If you purchase an owner occupied multifamily with good cash flow potential after you leave then you will have 2-4doors and hopefully a decent amount of cash saved up from liquidating your current house. Also, you should be able to save more cash while house hacking.

I am in a similar scenario the only issue is finding a multifamily that my wife will agree to live in. If we don't find one then I will have to BRRR single families to start out with.

If you had that 15k in hand would you buy you current residence as an investment property? I think your answer to that may help you make a decision. Everybody has different goals and different strategies to achieve their goals.

Originally posted by @Nathan Hui:

@Josiah Sia

Disclaimer: I am a newbie.

I would go with option 1. Unless the home you currently live in has very good appreciation potential I would cash out. If you purchase an owner occupied multifamily with good cash flow potential after you leave then you will have 2-4doors and hopefully a decent amount of cash saved up from liquidating your current house. Also, you should be able to save more cash while house hacking.

I am in a similar scenario the only issue is finding a multifamily that my wife will agree to live in. If we don't find one then I will have to BRRR single families to start out with.

If you had that 15k in hand would you buy you current residence as an investment property? I think your answer to that may help you make a decision. Everybody has different goals and different strategies to achieve their goals.

OMG, Nathan, I am in the exact same boat. I'm not as "caring" I guess as to where I live and my focus is just on the end goal and how to get there the fastest. I'm trying to find a multifamily my wife will agree to live in as well. I found a nice 4 bed 2 bath but I think I might need to do a bit more convincing for the house hacking life style.

If she decides against it so be it. I'll go the BRRR single families route too :)

That's a very good question to ask. The area that I'm in is growing and value of houses are definitely going up. But based off of Zillow and Rentometer the average rental of houses in this area is about $200 below what my mortgage is. I don't think I'd be able to rent my current house for positive cash flow :/

Originally posted by @Josiah Sia:
Originally posted by @Nathan Hui:

@Josiah Sia

Disclaimer: I am a newbie.

I would go with option 1. Unless the home you currently live in has very good appreciation potential I would cash out. If you purchase an owner occupied multifamily with good cash flow potential after you leave then you will have 2-4doors and hopefully a decent amount of cash saved up from liquidating your current house. Also, you should be able to save more cash while house hacking.

I am in a similar scenario the only issue is finding a multifamily that my wife will agree to live in. If we don't find one then I will have to BRRR single families to start out with.

If you had that 15k in hand would you buy you current residence as an investment property? I think your answer to that may help you make a decision. Everybody has different goals and different strategies to achieve their goals.

OMG, Nathan, I am in the exact same boat. I'm not as "caring" I guess as to where I live and my focus is just on the end goal and how to get there the fastest. I'm trying to find a multifamily my wife will agree to live in as well. I found a nice 4 bed 2 bath but I think I might need to do a bit more convincing for the house hacking life style.

If she decides against it so be it. I'll go the BRRR single families route too :)

That's a very good question to ask. The area that I'm in is growing and value of houses are definitely going up. But based off of Zillow and Rentometer the average rental of houses in this area is about $200 below what my mortgage is. I don't think I'd be able to rent my current house for positive cash flow 

I’m surprised you can’t generate enough rental income to cover your Morgage. I think it will be a liability over time if that’s the case. 

Is the 4br 2ba multifamily or sf? 

Originally posted by @Nathan Hui:
Originally posted by @Josiah Sia:
Originally posted by @Nathan Hui:

@Josiah Sia

Disclaimer: I am a newbie.

I would go with option 1. Unless the home you currently live in has very good appreciation potential I would cash out. If you purchase an owner occupied multifamily with good cash flow potential after you leave then you will have 2-4doors and hopefully a decent amount of cash saved up from liquidating your current house. Also, you should be able to save more cash while house hacking.

I am in a similar scenario the only issue is finding a multifamily that my wife will agree to live in. If we don't find one then I will have to BRRR single families to start out with.

If you had that 15k in hand would you buy you current residence as an investment property? I think your answer to that may help you make a decision. Everybody has different goals and different strategies to achieve their goals.

OMG, Nathan, I am in the exact same boat. I'm not as "caring" I guess as to where I live and my focus is just on the end goal and how to get there the fastest. I'm trying to find a multifamily my wife will agree to live in as well. I found a nice 4 bed 2 bath but I think I might need to do a bit more convincing for the house hacking life style.

If she decides against it so be it. I'll go the BRRR single families route too :)

That's a very good question to ask. The area that I'm in is growing and value of houses are definitely going up. But based off of Zillow and Rentometer the average rental of houses in this area is about $200 below what my mortgage is. I don't think I'd be able to rent my current house for positive cash flow 

I’m surprised you can’t generate enough rental income to cover your Morgage. I think it will be a liability over time if that’s the case. 

Is the 4br 2ba multifamily or sf? 

I would only be able to generate about $1500 based on rentometer. The mortgage for the place is $1600 :/ It's a 4br 2ba sf house in a nice subdivision. 

Originally posted by @Josiah Sia:
Originally posted by @Nathan Hui:
Originally posted by @Josiah Sia:
Originally posted by @Nathan Hui:

@Josiah Sia

Disclaimer: I am a newbie.

I would go with option 1. Unless the home you currently live in has very good appreciation potential I would cash out. If you purchase an owner occupied multifamily with good cash flow potential after you leave then you will have 2-4doors and hopefully a decent amount of cash saved up from liquidating your current house. Also, you should be able to save more cash while house hacking.

I am in a similar scenario the only issue is finding a multifamily that my wife will agree to live in. If we don't find one then I will have to BRRR single families to start out with.

If you had that 15k in hand would you buy you current residence as an investment property? I think your answer to that may help you make a decision. Everybody has different goals and different strategies to achieve their goals.

OMG, Nathan, I am in the exact same boat. I'm not as "caring" I guess as to where I live and my focus is just on the end goal and how to get there the fastest. I'm trying to find a multifamily my wife will agree to live in as well. I found a nice 4 bed 2 bath but I think I might need to do a bit more convincing for the house hacking life style.

If she decides against it so be it. I'll go the BRRR single families route too :)

That's a very good question to ask. The area that I'm in is growing and value of houses are definitely going up. But based off of Zillow and Rentometer the average rental of houses in this area is about $200 below what my mortgage is. I don't think I'd be able to rent my current house for positive cash flow 

I’m surprised you can’t generate enough rental income to cover your Morgage. I think it will be a liability over time if that’s the case. 

Is the 4br 2ba multifamily or sf? 

I would only be able to generate about $1500 based on rentometer. The mortgage for the place is $1600 :/ It's a 4br 2ba sf house in a nice subdivision. 

I see, sounds like a nice setup. I don’t know if you are in an expensive market but reducing personal living expenses (if possible) may help for long term success. I think most successful investors who start with very little have to find ways to live well below their means. 


 

Updated over 2 years ago

Meant to add that I am one of those investors who has “very little”. Did not intend to offend

@Nathan Hui thanks for that. That is definitely our first step!

@Account Closed That's a GREAT idea! I might be able to convince my wife to go that route. We would get a nice house like she wants and just AirBNB some of the rooms to start with REI. But I'm not sure how that works. Don't you normally AirBNB the entire house? You can AirBNB just a room or two? Would they have access to the rest of the house (living room, kitchen, etc.) or are you talking about a duplex/triplex kind of house?

I've heard a lot of house hacking for duplex/triplex but I haven't heard about doing a normal house and AirBNB'ing it!