First house hack: Turn key or minor renovations?

Question

I'm committed to purchasing a duplex to househack within the next 6 months (ideally).

What would you do?

A: Buy a turnkey property to get your skin in the game start building equity asap

B: Buy a property in need of very minor renovations (interior cosmetic) to jump start the equity building with forced appreciation.

If A, I feel the return on investment and cash on cash return would be diminished due to buying an already repaired and appraised property.

If B, I would have to save a few extra months to budget for repair costs, Unless I can find a private lender to help me out.

I can see advantages and disadvantages to both A and B, but I would love to hear other investors opinions and/or experience!

Thank you for taking the time to educate me!

Zachary Ray · Answer

Either plan would work. Just find a deal where the numbers make sense. Lets say its a duplex. If the other side caused you only to pay of mortgage of like 100 or less that is still a great deal. Once you eventually move out it will cashflow. Plan B would be better but go with what's available.

Marc Rice · Answer

@Austin Hawthorn

B, the use that equity down the line to snowball

William P. · Answer

Hello Austin!

Between those options, I personally just started my real estate journey with option B after spending a lot of time between getting my financials together, education, and formulating my general plan for now. When you are house hacking you will generally be living at that property for at least a year which is plenty of time to build some sweat equity and hands on education regarding some DIY projects & being a landlord. With that in mind remember to utilize contractors insight when needed and/or other resources and do it with them which continues to build the sweat equity and education. Whenever I was looking for a house, I was more focused on building my momentum than I was getting that perfect BRRRR deal with 0 hands on experience in the game. I also was making sure there wasn't any major projects I wasn't uncomfortable with and essentially looking for something with good bones. I wish you the best with your endeavors and feel free to reach out anytime!

Brandon Rush · Answer

Hey Austin, I was in the same debacle for the past year. I was looking for a property to BRRRR as my first house hack but ran into a few roadblocks along the way. I was so determined to find a BRRRR deal I had my blinders on to some good turnkey cash flowing properties that popped up on the MLS along the way.

I think the key is figuring out what your long term goals are and working backwards from there. For me, not having to work or rely on work so much is a major goal. So that led me to the decision to pick up a turnkey property as my first house hack. I pretty much bought it full price will little equity. But it aligned with my goals as I am now mortgage free allowing me to not care so much about work being a major part of my life. It also allowed me to get started in investing.  It allows me the piece of mind to know that I have the flexibility to try new things, possibly fail and try new other things and not have to worry about paying on a mortgage or other debts.

Of course if you could find a property that requires some rehab and you can build some equity go for it. You will get the benefit of having no mortgage and some equity off the bat. Either way you go, there are benefits in both options. Again, just consider your long term goals and what is truly important to you in life.

Good luck and let me know if you have any questions.

Warren Swede · Answer

@Austin Hawthorn

My business partner bought his house that needed some minor repairs. It took him some time, but he eventually got the work done and started renting (I would recommend hiring contractors). I helped him do some of the basic stuff; removing carpet, basic demo, and landscaping, but he ended up getting an electrician to help out with putting in a second washer and dryer and someone to do flooring. In the end he got some sweat equity built up and if he does ever decide to sell he will make a good profit based on its new value.

TLDR; buy a house with repairs you are comfortable making or contracting for and get some sweat equity.