Seeking Guidance on Investment Strategy- New to the Game

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Seeking Guidance on Investment Strategy- New to the Game

Dominica Zhu
Rental Property Investor · Seattle, WA · Member since 2020 · 3 posts · 2 votes

Hi everyone,

I'm so happy to have found this community. I am new to real estate investing, in fact, I've spent the last few months absorbing as much information as I can. I'd love to be as transparent as possible. My goal in life is to pursue my social impact work and be financially independent so I can do so. My last seven years have been spent in humanitarian work and I wish to build my financial independence so I can keep doing that. I will also say that along with stock investing my goal is to be financially independent in 10 years. That being said, my current W-2 job has become more unstable because of changing times with COVID and cuts with funding. That has put a huge fire to start to really get my first deal, even though I still feel I have a lot to learn. 

I live in Seattle. I have enough for a good downpayment and want to house hack a multifamily unit. I told a friend this and she advised I look out of state because the amount I have saved up can stretch way farther in another state. I don't necessarily want to move but I do want to get the most out of my money. My questions are:

1) how do you know what strategy to try first? I am definitely drawn to house hacking bc of the house rental prices in Seattle area. Would you advise the first deal be in state or out of state? Why?  

2) A friend advised me to go to a loan officer to see what I can qualify for. Should I do this before I have my strategy figured out? If I get my pre-approval, how much time do I have before I have to find my "deal"? And does this work for out of state? 

I'd like to have a deal by November/December since I am not sure my W-2 will last past that with the budget cut. Does anyone have any suggestions for this situation? I would love to hear the thoughts in this group and what you would do in my situation and how you would strategize. I want to be thorough in my decision making, but I do feel like I am on a time line. Please advise, thank you so much! 

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Michael HaasBusiness Member
Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
6y

@Dominica Zhu - I second Brian's recommendation to pick up Craig Curlop's book on house-hacking, its a great introduction to the subject.

Pre-approvals are typically good for 90 days, and area very easy to renew (assuming none of your w-2 income or liabilities have changed recently). I'd recommend doing this now if you'd like to get into a house by December. PM me if you'd like the contact info for some good investor-friendly mortgage brokers.


How experienced is your friend? You'll want to look carefully your friend's personal success before taking their advice. Advice is free, but the wrong advice can cost you a lot.

I'd highly recommend house-hacking- thats how we've built our rental portfolio with low money down and great Cash-on-cash returns. In our experience, the biggest benefit is lower loan costs and lower down payments - for the same $40,000 down payment, you can buy a $600,000 house in Seattle (5% down) or a $145,000 house in the Midwest (25% down, pretty much a requirement when buying non-owner occupied properties). Your loan for the investment property in the Midwest will also be about 0.4% higher interest rate, as there is a rate discount associated with owner-occupied properties. 

When the market appreciates would you rather own the $600,000 rental property with a lower interest rate or the $145,000 property with a higher interest rate if they cost you the same cash to purchase? 

Feel free to shoot me a message if you want to grab a coffee talk about the difference in the two strategies in more detail. Cheers!

[email protected]408-439-7873
HouseHack Seattle | Michael Haas & Team572 Reviews
WebsiteView Page
4Reply
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  • Craig Anderson
    Member since 2020 · 87 posts · 35 votes
    6y

    Don't be in such an hurry to invest in real estate. Given the current conditions in 2020, likely to last into 2021; this is time to take care to invest carefully, & to be prudent in this.

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Dominica Zhu

    1) depends on your goals, resources, experience, local market, network, etc. In our case we chose the Vacation Rental business because though it’s a very active biz, the profit can be very lucrative and we are focused on increasing our income. A house hack is *almost always* a great way to start if it can be done in your local market.

    2) it doesn’t hurt to get prequalified but it does help to know where you plan to buy, especially if going OOS, since not all lenders can lend in other states. You need to know your strategy.

    I’m a little concerned about you committing to a mortgage if your job is unstable, thus you must make sure your purchase will pay for itself, ie cash-flow.

    Advice:

    Read the book by Josh Dorkin and Brandon Turner on beginning in RE to get crystal clear on what strategy you want to pursue if you are uncertain.

    If you are confident in starting with a house hack, it’s a great place to begin, read the book by Craig Curlop on the House Hacking strategy for a deep dive.

    Also, the most recent BP podcast guest was a guy house hacking in Seattle, he is doing a rent by the room strategy. Listen to that.

    The most important beginning steps are to decide on a market and a strategy. If you can pull off the house hacking strategy locally, that is the very best place to begin as a new investor imo.

    Fyi, when purchasing a property the lender will be checking with your employer multiple times before closing about the likelihood of your future employment.

    1Reply
  • Sam Lewis
    Real Estate Agent · Baltimore, MD · Member since 2018 · 285 posts · 228 votes
    6y

    Welcome to BP! Addressing your points below: 

    1) how do you know what strategy to try first? I am definitely drawn to house hacking bc of the house rental prices in Seattle area. Would you advise the first deal be in state or out of state? Why?

    Brandon and David especially recommend starting out househacking because it allows you to wear a ton of different hats at once. You get to be involved in the process of purchasing a home, tenant screening, creating lease agreements, working on minor repair work, creating a network of contractors, etc. 

    With all that being said, househacking is great because you can qualify for a government assistance loan (anywhere from 3-20% down) since you will be living in one of the units (or one of the rooms if it is a single family home). 

    I would highly advise your first property purchase to be in-state, preferably in an area you consider your "backyard." It's way better to make mistakes in your local sandbox then in the middle of a highway. 

    2) A friend advised me to go to a loan officer to see what I can qualify for. Should I do this before I have my strategy figured out? If I get my pre-approval, how much time do I have before I have to find my "deal"? And does this work for out of state?

    Nothing hurts with getting the opinion of a loan officer. Typically they don't run a hard pull on your credit, so it won't affect your credit score. Typically pre-approvals are good for 60-90 days depending on the lender. 

    A lot of lenders nowadays service multiple states, but again, I cannot stress the importance in investing in an area you are familiar with. If that area happens to be out of state, go for it, but if you don't plan to live there, you legally would not qualify for a low down payment option. 

    1Reply
  • Michael HaasBusiness Member
    Real Estate Agent · Sammamish, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 725 posts · 3k+ votes
    6y

    @Dominica Zhu - I second Brian's recommendation to pick up Craig Curlop's book on house-hacking, its a great introduction to the subject.

    Pre-approvals are typically good for 90 days, and area very easy to renew (assuming none of your w-2 income or liabilities have changed recently). I'd recommend doing this now if you'd like to get into a house by December. PM me if you'd like the contact info for some good investor-friendly mortgage brokers.


    How experienced is your friend? You'll want to look carefully your friend's personal success before taking their advice. Advice is free, but the wrong advice can cost you a lot.

    I'd highly recommend house-hacking- thats how we've built our rental portfolio with low money down and great Cash-on-cash returns. In our experience, the biggest benefit is lower loan costs and lower down payments - for the same $40,000 down payment, you can buy a $600,000 house in Seattle (5% down) or a $145,000 house in the Midwest (25% down, pretty much a requirement when buying non-owner occupied properties). Your loan for the investment property in the Midwest will also be about 0.4% higher interest rate, as there is a rate discount associated with owner-occupied properties. 

    When the market appreciates would you rather own the $600,000 rental property with a lower interest rate or the $145,000 property with a higher interest rate if they cost you the same cash to purchase? 

    Feel free to shoot me a message if you want to grab a coffee talk about the difference in the two strategies in more detail. Cheers!

    [email protected]408-439-7873
    HouseHack Seattle | Michael Haas & Team572 Reviews
    WebsiteView Page
    4Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    6y

    @Michael Haas yes get pre approved first ... sounds like this will be an issue

    0Reply
  • Dominica Zhu
    OP
    Rental Property Investor · Seattle, WA · Member since 2020 · 3 posts · 2 votes
    6y

    Thank you so much for all the awesome guidance everyone, it sounds like overwhelmingly that house hacking in my local state would be the right first step. 

    @Michael Haas you're absolutely right about who to listen to for advice! Thank you for offering for a coffee meet up :) I have heard that it is difficult to find duplex/multiplexes in Seattle but I would ideally want to go for that.

    @Sam Lewis awesome suggestions!! thank you! Definitely will be reading the house hacking book too.

    @Brian G. I listened to the Bigger Pockets podcast (the recent one about the rental properties in Seattle) and that was AWESOME. thank you for that suggestion. 

    @Dave Skow yes, good idea. Looks like you're in Seattle, I'd love to talk to you more if you're available! 

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    6y

    @Dominica Zhu

    Sure

    0Reply
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