Just getting started in really taking a hard look into real estate investing. Came across the concept of House Hack and wanted to solicit expert opinion from this forum.
I grew up with the mind set of never leveraging your own personal home for business. I purchased my home here in Los Angeles, CA two years ago. My wife and I spent over two years prior searching for the perfect home, perfect location, school district, walkability etc. and I truly believe we achieved our goal! I also believe we purchased at a good time and we currently have approximately 40K of equity after our repair cost to the house. I have heard stories of investors selling their home, then renting a house and using that capital to invest in out of state? Good idea or nah?
I am also researching different was to fund my first investment (hopefully a multi unit property 4-10 units out of state) by leveraging self directed IRA's.
Let me know your thoughts. Thanks all.
Hey Evan! Congrats on finding that perfect home to live in. That's an elusive creature to find if you're not building. If you are considering investing out of state I would look into using the equity you have in your home first before you decide to sell and use the money from the sale.
House hacking really means you buy a property as an owner occupant and live in the property while you remodel it, than sell or rent for a profit. This is a great way to do things if you dont mind moving every few years. You are able to buy properties with lower down payments, 3-5 percent down typically vs 20% down most non-owner occupant borrowers would have to pay. The profit is tax free as well if you occupy the property 2 of the last 5 years. Not many ways in life to avoid paying taxes on income. This is the best I know of. Now if this is the perfect home for your family, in the right area, school district, etc. than it might not be the best decision to move. You mention you have 40k equity. Now is there actually more money available if you were to sell, for instance all of your intial down payment funds, and all of the money you used to fix the home up. Im not sure what these numbers are but if these numbers are substantial and say you have 100k total to walk away with, you would have a nice chunk of change to invest in out of state rentals that could generate a good monthly cashflow. Now you will likely also have cost when selling, real estate commissions, your closing costs, and often the buyers closing costs. costs would typically range from 6-10% of purchase price. Also when investing in rental properties out of state there are many issues and problems that arise, and if you have no experiences in the rental property business, this may be a major headache. If you have someplace in particular you are familiar with, and maybe even have connections, real estate agents, contractors, friends or family this can ease the burden substantially.
@Evan Bridges , Are you saying your TOTAL equity is $40k, or is that your ADDITIONAL equity on top of your purchase price? If it's $40k in total, then you likely don't really have the option of leveraging it any further anyway.
If you went to so much effort to get your home, it would seem a shame to just turn it over now for a house-hack that WILL impact your lifestyle. I don't really buy into the rent-instead argument when you like the home you already bought. I am a strong advocate of: rent-money-is-dead-money!
If however you have lots more borrowing capacity than $40k (maybe even including using your own home as security), I really do like your idea "to fund (your) first investment (hopefully a multi unit property 4-10 units OUT OF STATE) by leveraging self directed IRA's"
[The "out of state" emphasis was deliberately added because that IS what it might take to get the desired positive cash flow not readily found in CA - a point you already appear to have learned].
By putting your own home on the line, you will hopefully ENSURE that every possible check and balance is carried out before borrowing against it. Which should be done anyway of course!
Welcome to BP. All the best...
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing