House hacking when the market is high/peak? Risky or not?

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House hacking when the market is high/peak? Risky or not?

Jonathan Escobar
Provo, UT · Member since 2019 · 55 posts · 14 votes

I'm really considering buying my first house and house hacking it. I am currently a student at Brigham Young University in Provo Utah and other investors have told me that the market is very high right now. We have been in a bull market for about 10 years which has been the longest in history. If I'm planning on buying a house every 1-2 years, would this be a risky investment knowing that if the market corrects, then I could lose a lot of rent from tenants and then be stuck with paying more on my house. I know that you can't tell when there is going to be a correction, but what are the risks that I have to consider just in case that were to happen? 

I would have my dad co-sign with me to qualify for the FHA loan and I'm sure he would help out on the payments if the house lowers in rents. So I think there would be a low probability that i would ever default on the house... what are your thoughts? I've looked at the market here in Orem Utah which is where I want to be because it's close to Utah Valley University where the renting rules are more lenient than for BYU Students, and just from looking at the mortgages that I calculate, it would be very tough to find a rental property that I could live in and cash flow positively.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y

If you are too scared to buy when the market is good, why do you think you will have the cajones to buy when the market is bad?

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  • Dennis Maynard
    Real Estate Broker · Los Angeles, CA · Member since 2018 · 300 posts · 146 votes
    7y

    Depends what where how and with whom.  Look, if the market turns down, you'll have plenty of renters.  The flip side is you will loose equity value for a few years.  If you are okay with that, and the numbers work, and your in it for the long haul and not to flip it in 2 years, then you should be fine in theory.

    1Reply
  • Bill Plymouth
    Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
    7y

    There is always a risk.  No investment is ever 100% risk free.  The thing is though, you don’t know when the correction will begin.  It could start tomorrow, or it could take another 10 years.  you just don’t know.  

    What matters the most is that you buy correctly. Instead of a typical FHA loan, try getting the FHA 203k. It's a rehab loan. Buy a property for under market value, fix it up, then live in and rent out another unit. That way, you have built in equity and a cushion in the event of a correction.

    Also, I would suggest saving up some reserves.  It’s great if your dad can help, but what if something changes in his financial situation that keeps him from being able to supplement your payments in the event of a downturn?  Then you’re SOL.  SOL is a sophisticated investment term meaning “sh*t out of luck”.  

    Good luck!  I hope this helps. 

    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    If you are too scared to buy when the market is good, why do you think you will have the cajones to buy when the market is bad?

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    8Reply
  • Joe Davidson
    Wholesaler · Cincinnati, OH · Member since 2016 · 12 posts · 2 votes
    7y

    Regional trends are a good guideline to spot changes in the market. We in the Midwest are  months behind changes on the coasts. Having  multiple exit strategies (use/rent/flip) can help alleviate some risk, but you ALWAYS make your money when you buy.

    0Reply
  • Cherie Orellana
    Salt Lake City, UT · Member since 2018 · 219 posts · 182 votes
    7y

    I have been in real estate as an investor and an agent/broker for 14 years.  I have bought and sold in every market and I’m continuing to buy currently.  This is with the intention of long term buy and hold.  I think that if you buy something that pays most of your mortgage while you live there you will be in good shape.  Something that if you moved  it would cash flow substantially.  I would say more than $500 a month.  In this situation it shouldn’t really matter what the market does.  It may continue to increase over the next two years and you’ll be kicking yourself that you didn’t do it sooner.  If you are cash flowing enough when you purchase the property you should still be OK even a downturn.  Utah has such growth in population and jobs and even rental prices continue to rise. The board of realtors suggests that population and home prices double in the next 20 years.  If you plan on holding the property for at least five I would definitely move forward and house hack!

    1Reply
  • Jonathan Escobar
    OP
    Provo, UT · Member since 2019 · 55 posts · 14 votes
    7y

    So I'm currently not working. I'm a full time student but I rent out my car and have done so for about a month which has given me around $350 using the app TURO. (Like air BNB). I'm saving that money and walking to school instead of driving. 

    Because this is my first house, and it probably won't cash flow very much, if there is a correction, that would lower the rent and lower my passive income causing me to pay more on my mortgage. Then I would have to get a job and sacrifice some of my study time (I'm wanting to go into dental school) so should I just make sure that it cash flows once I move out and buy another house that hopefully cash flows more the next year?

    0Reply
  • Jonathan Escobar
    OP
    Provo, UT · Member since 2019 · 55 posts · 14 votes
    7y
    Originally posted by @Bill Plymouth:

    There is always a risk.  No investment is ever 100% risk free.  The thing is though, you don’t know when the correction will begin.  It could start tomorrow, or it could take another 10 years.  you just don’t know.  

    What matters the most is that you buy correctly. Instead of a typical FHA loan, try getting the FHA 203k. It's a rehab loan. Buy a property for under market value, fix it up, then live in and rent out another unit. That way, you have built in equity and a cushion in the event of a correction.

    Also, I would suggest saving up some reserves.  It’s great if your dad can help, but what if something changes in his financial situation that keeps him from being able to supplement your payments in the event of a downturn?  Then you’re SOL.  SOL is a sophisticated investment term meaning “sh*t out of luck”.  

    Good luck!  I hope this helps. 

    What is the difference between an FHA and FHA 203K

    0Reply
  • Bill Plymouth
    Real Estate Agent · Philadelphia, PA · Member since 2018 · 416 posts · 396 votes
    7y

    An FHA 203k allows you to buy a property that needs to be rehabbed that a traditional FHA loan typically wouldn't finance. The cost of the rehab is tied into the loan. You just need to use a HUD approved contractor. You wouldn't be allowed to do the work yourself.

    1Reply
  • Thomas Taylor III
    Flipper/Rehabber · Columbus, MS · Member since 2019 · 22 posts · 16 votes
    7y
    This is not a good time for you to buy a home, unless your Pop’s is willing to cover the down payment, 6 months of expenses, reserves for repairs, etc(aka $60k-$80k). Not trying to rain on your picnic, Utah county is booming and needs more rentals. Sounds like your heads in the right place, but your pocketbook is somewhere else.

    Originally posted by @Jonathan Escobar:

    So I'm currently not working. I'm a full time student but I rent out my car and have done so for about a month which has given me around $350 using the app TURO. (Like air BNB). I'm saving that money and walking to school instead of driving. 

    Because this is my first house, and it probably won't cash flow very much, if there is a correction, that would lower the rent and lower my passive income causing me to pay more on my mortgage. Then I would have to get a job and sacrifice some of my study time (I'm wanting to go into dental school) so should I just make sure that it cash flows once I move out and buy another house that hopefully cash flows more the next year?

    2Reply
  • Jonathan Escobar
    OP
    Provo, UT · Member since 2019 · 55 posts · 14 votes
    7y
    Originally posted by @Thomas Taylor III:
    This is not a good time for you to buy a home, unless your Pop’s is willing to cover the down payment, 6 months of expenses, reserves for repairs, etc(aka $60k-$80k). Not trying to rain on your picnic, Utah county is booming and needs more rentals. Sounds like your heads in the right place, but your pocketbook is somewhere else.

    Originally posted by @Jonathan Escobar:

    So I'm currently not working. I'm a full time student but I rent out my car and have done so for about a month which has given me around $350 using the app TURO. (Like air BNB). I'm saving that money and walking to school instead of driving. 

    Because this is my first house, and it probably won't cash flow very much, if there is a correction, that would lower the rent and lower my passive income causing me to pay more on my mortgage. Then I would have to get a job and sacrifice some of my study time (I'm wanting to go into dental school) so should I just make sure that it cash flows once I move out and buy another house that hopefully cash flows more the next year?

     So what should I do in order to start investing if Utah county is not a good place to start an investment?

    0Reply
  • Thomas Taylor III
    Flipper/Rehabber · Columbus, MS · Member since 2019 · 22 posts · 16 votes
    7y
     Education.  Go ahead and finish your degree, get a high paying job, and then start investing.  Utah County is a great place to start, but it is also very expensive and you will have a hard time staying afloat without income that isn’t rent dependent. 


    Originally posted by @Jonathan Escobar:
    Originally posted by @Thomas Taylor III:
    This is not a good time for you to buy a home, unless your Pop’s is willing to cover the down payment, 6 months of expenses, reserves for repairs, etc(aka $60k-$80k). Not trying to rain on your picnic, Utah county is booming and needs more rentals. Sounds like your heads in the right place, but your pocketbook is somewhere else.

    Originally posted by @Jonathan Escobar:

    So I'm currently not working. I'm a full time student but I rent out my car and have done so for about a month which has given me around $350 using the app TURO. (Like air BNB). I'm saving that money and walking to school instead of driving. 

    Because this is my first house, and it probably won't cash flow very much, if there is a correction, that would lower the rent and lower my passive income causing me to pay more on my mortgage. Then I would have to get a job and sacrifice some of my study time (I'm wanting to go into dental school) so should I just make sure that it cash flows once I move out and buy another house that hopefully cash flows more the next year?

     So what should I do in order to start investing if Utah county is not a good place to start an investment?

    0Reply
  • Jonathan Escobar
    OP
    Provo, UT · Member since 2019 · 55 posts · 14 votes
    7y
    Originally posted by @Thomas Taylor III:
     Education.  Go ahead and finish your degree, get a high paying job, and then start investing.  Utah County is a great place to start, but it is also very expensive and you will have a hard time staying afloat without income that isn’t rent dependent. 


    Originally posted by @Jonathan Escobar:
    Originally posted by @Thomas Taylor III:
    This is not a good time for you to buy a home, unless your Pop’s is willing to cover the down payment, 6 months of expenses, reserves for repairs, etc(aka $60k-$80k). Not trying to rain on your picnic, Utah county is booming and needs more rentals. Sounds like your heads in the right place, but your pocketbook is somewhere else.

    Originally posted by @Jonathan Escobar:

    So I'm currently not working. I'm a full time student but I rent out my car and have done so for about a month which has given me around $350 using the app TURO. (Like air BNB). I'm saving that money and walking to school instead of driving. 

    Because this is my first house, and it probably won't cash flow very much, if there is a correction, that would lower the rent and lower my passive income causing me to pay more on my mortgage. Then I would have to get a job and sacrifice some of my study time (I'm wanting to go into dental school) so should I just make sure that it cash flows once I move out and buy another house that hopefully cash flows more the next year?

     So what should I do in order to start investing if Utah county is not a good place to start an investment?

     What if I can buy a house that is a house hack that will give me cash flow of -$400 every month? This is a lot better than renting which is $700-$900 a month for marriage housing here in provo. Then after a year or two, sell it for a profit?

    0Reply
  • Rob Massopust
    Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    7y

    Ultimate house hack is to buy a 2-4 unit FHA[Fannie Mae might be easier to get out of PMI down the road] in college town or similar. Live in one of the units, collect rent, rehab, upgrade, rent for higher amounts, refi into conventional to get out of PMI. If you can do conventional with owner occupied 5-10% might work too.

    Buy with fundamentals in mind, dont buy for speculation but what can you reasonably increase rents for and cash flow. Have a good exit strategy and remember you are more likely to sell to investor vs another owner occupied.

    You can do with a SFR too, and just rent out some of the bedrooms. Easier to sell on the exit side.

    0Reply
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