House hack locally or BRRRR out of state?
Hi Bigger Pocketers,
I'm a new investor trying to make a whole bunch of things work all at once and I'd like to borrow your wisdom to help choose some priorities.
About me: I just changed careers to my dream job (yay!) but the pay is poor and I'm trying to supplement income with rental properties. I have plenty of cash saved for a down payment, but my own personal risk preferences means that I would like to keep my first real estate purchase under $200K. I am living in an over priced miserable apartment and I would like to get out of it ASAP.
About my local market: The area I live in (Asheville, NC) is a tourist/retirement hot spot. That means that median home prices are a solid $100K above what median incomes can afford. It also means that a "cash flowing" property makes about .75% of its purchase price in rent. Most homes under $230K are mobile homes, tiny homes, or in such a state of disrepair as to not qualify for conventional financing. A typical MLS listing might be a 1930's 2/1 for $160K with an estimated market rent of $1200 and at least one structural issue (leaking/cracked foundation, expired roof, insufficient septic, old wiring)
HOWEVER! In nearby Greenville, SC there are a host of properties that are newer, nicer, cheaper, and more in line with what a typical 1% rental property might present. Just a cursory search the other day turned up a foreclosure Zestimated at $95K with a market rent estimate of $1150/mo.
My goal is to take my chunk of cash, which is sitting in the bank doing NOTHING for me since I neither trust the stock market nor have the patience/spare nerves to deal with the government's HORRENDOUS treasury direct website, and make it start producing income for me as soon as possible. The way I see my choices now are:
A. House hack a local property that I would otherwise consider a bad investment save for the rent savings that I would make with it.
B. Continue over paying for rent, but buy an investment property out of state with some kind of creative financing and a big down payment, but which cash flows nicely and also gives me a solid COC return.
By my numbers, *if* I can find a non-gut-job 3/2 or better locally, I can reasonably expect to make $1100-$1300/mo renting two rooms and to pay $850-950/mo for conventional financing ($170-190K purchase price, around $30K down). Subtract $100/mo for utilities and another, say $150/mo for maintenance and that gives me a NOI of -$100 (worst case) to $200/mo. So by itself, not the best investment, but once you include the $650/mo I save in rent you get a range of
House hack cash flow increase: $550-$850/mo average.
The numbers look great, but the key takeaway here is IF. So far in a month of searching I've found exactly ONE property that could make these numbers work. I put an offer on another two days ago that would make the numbers work and it was $40K below asking price and roundly rejected.
Now, when I consider investing out of state what I come up with (generally) is that I could, probably within a month or two, finance and own a $130K house generating $1300/mo in rental income. I'd have to finance it however investors finance single family buy-and-holds for which they do not qualify for conventional financing, but I imagine that's a "how" not an "if" question. Let's say I have to finance it at 5% on $110K with private money or seller financing. That puts my payment at $770/mo. Now my NOI is $1200, but my cash flow is $1200-770 = $430.
Out of state cash flow increase: $430/mo expected.
So either way I'm making money over letting my cash rot in a nearly-no-interest savings account, but in the house hack scenario I don't know how long it will be until something functional shows up -- could be months while in the out of state investment I could own something almost right away, but I'd be stuck paying rent for a miserable apartment and would have little ability to control my living situation OR the rental property.
So what would you do? I can suffer a lot if I know it's going to serve my goals. I'm leaning towards house hacking because I think it accelerates my savings towards property number 2 and gets me out of throwing money out my proverbial apartment window, but the lack of options is leaving me antsy and frustrated. Would love to hear your input.
Thx