Advice needed: 40K to 80k for 1. sf rental airbnb 2 duplex HH
Member since 2018 · 44 posts · 5 votes
Advice needed: 40K to 80k for 1. sf rental airbnb 2 duplex HH
Most Popular Reply
Developer · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes
6y@Account Closed, How flexible are you with your house hacking criteria? Finding duplexes or any other multis in A or B Class neighborhoods is really touch at that price range.
7 Replies
- Member since 2019 · 57 posts · 9 votes6y
Hello Mario! Those are a short term asset and a long term investment. It depends on your goals or plans. I think an Airbnb will be one of the first things to lose if the market goes down but a rental is a proven type but you'll probably need about 20 SFH's to get where you want to be to pay your monthly expenses. That quantity will be less painful with an unoccupancy. With one unit you are either 0 or 100% occupancy. To do a house hack will force you to put 20% down because you'll only find them at a bank which usually takes 20% down. Philip should be a good place to be and find an investment.
Good luck to you!
- 6yKevin MoyerBusiness MemberProperty Manager · Philadelphia, PA · Member since 2019 · 271 posts · 303 votes
@Account Closed I'm slightly confused by your first scenario- but something to keep in mind is Philly's local laws against Airbnb operation outside of your primary residence (even then there are still limitations). So there are always regulatory concerns for running an Airbnb in Philly. Best of luck
Otter Property Management4.8636 Reviews - Developer · Philadelphia, PA · Member since 2018 · 428 posts · 484 votes6y
@Account Closed, How flexible are you with your house hacking criteria? Finding duplexes or any other multis in A or B Class neighborhoods is really touch at that price range.
- Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes6y
Hey @Account Closed I would consider option 2, personally, but would only put the minimum down. Consider your options as to why putting the minimum down maybe your best option for scaling your investment portfolio and increasing cash flow:
If you aren’t required to, what does putting more down really get you? 3% to 5% down works great because the less money you put down, the higher your overall returns will be (not to mention the appreciation rate on the property will be the same regardless of the amount borrowed). If you increase your down payment, all you are doing is buying cash flow. It usually reduces your return on investment.
Leveraging up will give you the greatest return, even though it's not the best cash flow. If you want to help with cash flow, then prepay PMI. Typically it'll be $5,000 or so to pay it up front if you have good credit and a house around the $400k price. PMI is wonky - talk with your lender.
If you only put 3.5 percent down you should have enough cash available for repairs and reserves and unforeseen expenses that always come up. Then, when you're living for right around free, save up more money to invest in your next property (either another house hack or a stand-alone rental).
Of course, make sure when you are calculating cash flow that you don't just use rent-payment. You need to include vacancy, utilities, repairs, CAPEX and management allocations. This is another reason to put less cash in and hold reserves. You want an emergency fund to cover the unexpected.
It’s all about leverage.. Do the math.. 3.5% of $XXXk is $XXk.. 20% is $XXk.. Is it worth it to invest the additional $XXk to pay that much less of a mortgage even though you are out of pocket every month? Can you put this $XXk to better use?
Could you have your cake and eat it too? By that I mean do minimum down with your house hack and then turn around and buy an investment property with the remaining $$$ (of course making sure you have ample funds for repairs, reserves, CAPEX, etc)?
A key principle is to invest for cash flow. As long as there is sufficient cash flow and you maintain reserve capital, leverage can be a great tool that allows for exponential growth.
- Member since 2018 · 44 posts · 5 votes6y
Originally posted by @Chace Fraser:
Hey @Account Closed I would consider option 2, personally, but would only put the minimum down. Consider your options as to why putting the minimum down maybe your best option for scaling your investment portfolio and increasing cash flow:
If you aren’t required to, what does putting more down really get you? 3% to 5% down works great because the less money you put down, the higher your overall returns will be (not to mention the appreciation rate on the property will be the same regardless of the amount borrowed). If you increase your down payment, all you are doing is buying cash flow. It usually reduces your return on investment.
Leveraging up will give you the greatest return, even though it's not the best cash flow. If you want to help with cash flow, then prepay PMI. Typically it'll be $5,000 or so to pay it up front if you have good credit and a house around the $400k price. PMI is wonky - talk with your lender.
If you only put 3.5 percent down you should have enough cash available for repairs and reserves and unforeseen expenses that always come up. Then, when you're living for right around free, save up more money to invest in your next property (either another house hack or a stand-alone rental).
Of course, make sure when you are calculating cash flow that you don't just use rent-payment. You need to include vacancy, utilities, repairs, CAPEX and management allocations. This is another reason to put less cash in and hold reserves. You want an emergency fund to cover the unexpected.
It’s all about leverage.. Do the math.. 3.5% of $XXXk is $XXk.. 20% is $XXk.. Is it worth it to invest the additional $XXk to pay that much less of a mortgage even though you are out of pocket every month? Can you put this $XXk to better use?
Could you have your cake and eat it too? By that I mean do minimum down with your house hack and then turn around and buy an investment property with the remaining $$$ (of course making sure you have ample funds for repairs, reserves, CAPEX, etc)?
A key principle is to invest for cash flow. As long as there is sufficient cash flow and you maintain reserve capital, leverage can be a great tool that allows for exponential growth.
Thank you for your reply, i am leaning towards being patient for a duplex to house hack or triplex. I was aiming around 275k to 375k for house hacking. I was thinking of putting down 15% cause i thought it would help with cash flow but your right about its basically buying cash flow. Putting down 3 or 5 % down will incur pmi which you mention i could pre pay for it around 5k which isnt bad. On a 275k or 350k property would i be able to break even or cash flow with low amount down?
i usually put 125 fix for vacancy, capex, repairs and 8% for PM. After all that i hope to get 150 minimum per door after moving out 1st year from house hacking. From what i can see i don't see much C plus areas where i can do this. Have you done HH on any C or below areas ?
- Realtor · Portland, OR · Member since 2017 · 357 posts · 259 votes6y
@Account Closed
If you are using a low down payment option, it's not really realistic to expect to be cash flow positive while you’re house hacking and living in the property. However, if your house hack reduced your housing costs from $1,200 to $600 per month, would that not be a win? That would create an extra $600 per month of “cash flow” that you could invest. Keep in mind the property must cashflow after you move out for the deal to make sense (in most scenarios). When an investor is looking at being cash flow positive, they are typically putting down 20 percent or more. If you are in a high demand metro area, it's simply not realistic to expect to be cash flow positive if you are putting down 0-10%.
Now if that is all the capital you have, that is what it is. Is it better to keep renting than to buy? Typically it is better to buy. Better to build your own equity through the debt paydown, enjoy the tax benefits of ownership, and garner the equity of an appreciating asset. You just can't expect to cash flow on an initial purchase with a low down payment. Now with time and rent growth, what could be a negative cash flow property might very well become a cash flow king, but that takes patience.
Another way to increase cash flow would be renting out rooms in the unit you live in, either Airbnb or longer term.
When I’m analyzing the numbers on a house hack I go through this progression. Keep in mind I’m in a high cost of living area so some of this may not be relevant to you. These “hurdles” typically go from easy to clear to harder and harder to clear. Better “deals” will clear more of the hurdles.
- The buyers housing cost must be lower than it was before. This one doesn’t always apply. What if you were living with your parents rent free? What if you were living with a friend and they were charging you way under market rent?
- Will the buyers portion of the mortgage payment be LOWER than the market rent for the unit they plan on living in. If you are renting a 2/1 and the market rent for that type of rental in the area is $1,000, then the amount of the mortgage payment you will be responsible for must be lower than $1,000. Otherwise, why would you pay more to live there? Remember, the goal of house hacking is to reduce your housing costs
- The property must be cash flow neutral or cash flow positive at the current rents if you were to never move in. If a unit is vacant I use current market rent.
This is where I start. If a property clears these hurdles, I’ll then start to dig a little deeper
Join the conversationCreate a free account to reply, vote on answers and follow this thread.