House Hack vs. Out of state investing

15 Replies

Hello all. Looking for some opinions here. I've been reading for a while and listening to the podcasts. Im about to finish the book on rental property investing today! I am 23 and have saved up 80k for a down payment. I live in Seattle, WA and have enough for a downpayment on a house nearby so that I could house hack. On the flip side I could also invest back in my home state of MI and buy 4-plexes for 200k. I am planning to move in ~2 years (maybe TX?), so house hacking would be short term.

So here is the question. As a first time investor, am I better off house hacking and putting all of my eggs in 1 house which I can learn to manage (with poor cashflow), or buying multiple properties back in my hometown where cashflow is significantly better and using a property management company. What factors should I consider, when deciding between the two. Either way, my 80k is going into houses of some sort. Just have to decide where, and how many to start with. Thanks in advance!

Updated over 5 years ago

I may very-well stay in Seattle area longer than 2 years, I just wanted to make my assumptions be on the safe side. Not sure if this changes your answers, but thanks!

Thanks for the reply @Anthony Angotti

 Yes, I should have included that. My parents still live my hometown (and probably will forever. They are quite young still), and my Aunt and Uncle manage a property in the town as well. I am sure that I could work out a reasonable deal with either my parents or aunt/uncle if I didn't want to pony up the full 10% for property management company.

What's your take on 1 local property vs multiple long distance?

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More suitable question is 1local vs 1 out of state. It's not advisable to buy multiple properties when you just start.

There will be lessons to be learnt in first purchase and your subsequent purchases will be much better deals. Buy 1 and wait and learn 6 months and then you can go all in.

The book says "House hacking" is a better way to get started.

@Tyler Markvluwer I would do the House Hack. You will have a big learning curve to survive. DON'T let relatives do the PM work, if you decide to go out of town to invest. It's a business and it's hard ball. when you take chances on investing your out of the minor leagues. never mix family and business. Do your relatives have experience? if not then they will make mistakes too. Those mistakes will cost you money. Maybe big money. It might make thanksgiving dinner a little rough. your new, so if you are going to learn look for a network of people to help you learn. A Lender, a realtor, a PM they can all help. Network with some local REI's to learn. The PM is the most important. They can make or break you.

If you House Hack you will learn a lot more, and after 2 years you can move out and will have a way better idea of what the PM needs to do to help your investment pay.  So you move and repeat.  The Pm will have your back on the first property and you will know how to manage the second.  At the end of 4 years you find another PM to manage your second property and you will have learned how to manage, both a property and a PM. and you will have 4 or more units well on their way.  You will have experience managing an out of town property, as well as a good start at working with out of town/state people.  (maintenance, utilities etc. on your first property)  Now its Katie bar the door because all you need is the right contacts to buy and hold out of state, or right there in your own town.  That's what I would do.  RR            

How good is the house hack deal?Will the property cash flow when you move to TX?

I don't know your market, but what if in 2 years, when you have to move, the value is lower than today and the property won't cash flow and you have to sell it?

I love house hacking, but for such a low time frame, I would not buy something that will not cash flow positive when I have to move.

@Tyler Markvluwer

Two thumbs up for hacking over out of state investing.  Although I agree with @Ciprian L. that you need to be at least break even so that when the market crashes in 1 year (as I'm hoping) you can hold onto the property after moving and not have negative cash flow.  

I'm in Indianapolis, and we have lots of out of state investors.  It is not easy to make a lot of money in real estate, and its even harder to make money in real estate if you're not there to keep an eye on it.  Especially at the beginning when you don't know what you're doing.  Let me know if you have more specific questions!  My husband and I are house hacking and I'm a big fan of the strategy.  

What did you end up deciding?

@Tyler Markvluwer undefined

I am in a similar position in the Denver - Boulder Metro area. I have an OOS rental in indy that brings me about $250/month cash flow after all expenses including PM. I live with room mates in Boulder and have cheap(for here rent $695/month).

Still weighing the options on another OOS property in the indy area, or house hacking locally. Which would 'save' me $695/month in rent, but factoring opportunity costs of missing out on $250/month also carries some weighting.

@Franklyn Roth I'm a bit confused by this decision here. If you had the choice between at the end of the month having made an extra $250 or not having spent $695, the end result would still be that you have that much extra money in the bank at the end of the month to invest in other things. I may be oversimplifying it but it seems like a house hack would be the way to go unless you find a property that cash flows more than $700/month.

That being said I think there are other things to consider with that though, I would probably want to look at things like potential appreciation and vacancy rates of the two areas before making the decision, but that would require to have multiple potential properties that you're actively considering rather than just thinking hypothetically about which may be better.

Originally posted by @Franklyn Roth :

What did you end up deciding?

@Tyler Markvluwer undefined

I am in a similar position in the Denver - Boulder Metro area. I have an OOS rental in indy that brings me about $250/month cash flow after all expenses including PM. I live with room mates in Boulder and have cheap(for here rent $695/month).

Still weighing the options on another OOS property in the indy area, or house hacking locally. Which would 'save' me $695/month in rent, but factoring opportunity costs of missing out on $250/month also carries some weighting.

I would go for the house hack in this area. For one thing, "missing out" on $250/month is not an opportunity cost when if you can live for free in a house hack you'd be reducing your monthly out of pocket expenses by $695. 695-250=you're still ahead $445/month. On top of that, $250/month cash flow is nothing compared to building actual wealth from life-changing 6 figure appreciation. Appreciation is not guaranteed of course, but with so many people moving here, and both natural and self-imposed limits to development, it's fairly obvious which direction real estate prices are going in this area. Appreciation has been 6% for the greater Denver area for the past 40 years. The average price for single family home in Denver is currently just under $500k. $500k X 6%= $30,000/yr.= $2,500/month= a lot better than $250/month. If you buy right anywhere in the Denver market, you are highly likely to make more in appreciation in 5 years than you will make in 30 years with an out of state rental. If you can come up with a down payment on a Boulder property, I'd do that: properties here are currently appreciating at an average rate of $300 PER DAY. I'd take $300/day over $250/month, all day, every day.

Wanted to followup here! I have been quite absent. I ended up house hacking, and have been for the last 2.5 years! The income has not been great, but I've learned quite a bit during the process. In addition house prices have gone up in Seattle over the last 2.5 years which may eventually make up for lost cash flow.

Overall I am happy house hacking. One major downside is that I changed jobs to place that is about 50 minutes away from where the house is, but can't afford to live closer to work and still hold the house. This has meant a much longer commute, but I am surviving for now!

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@Ross Gleason It sounds corny but there has never been a bad time to buy real estate in Boulder. It has always gone up, even during 2008-11. Appreciation is certainly not guaranteed, but neither is $250/month cash flow on an out of state investment. Positive $250/mo is only one extra maintenance call away from blowing the budget and being negative. $3,000 profit/yr. as a best case scenario means one major capex event like a sewer line, new windows, a roof, etc. could easily eat up several years worth of profits, never mind the tenant-related issues. People like to pretend cash flow is guaranteed and appreciation is speculation, but both are educated guesses.

@Steve K. Yeah I'm aware that any of the calculations we do as RE Investors are just estimations and as a statistics nerd I know that you aren't supposed to make decisions based on extrapolations. I was just saying that because the market in my hometown of Bloomington IN is no where near that hot and it seems crazy to me that the value just continues to grow like that, because the only kind of growth I've seen like that here in Bloomington is for land immediately around the local university campus.

@Franklyn Roth

I tell everyone that their first "investment" should be their own home. Get in, house hack away, learn about tenant screening, doing small repairs, managing leases, etc. I know cash-flow is what many on BP say it the only thing to consider, but in a market like Denver (or Boulder), if you can cash-flow or come close, I like my chances with appreciation. 

Consider this: since 1975, Denver home prices have appreciated on average 6%. That accounts for two slumps in the mid-80 and the 07/08 crash. Appreciation in the next year will be $24000. Are you making that in cash flow? Probably not. Get the biggest house you can for the price you can, rent out all the rooms that you're not in and hold it for 10 years. 

That's my two cents, at least. Good luck!