House hacking in high-cost areas versus in low-cost areas?

Question

Are there differences to consider when house hacking in a high-cost area versus house hacking in a low-cost area? Does this change depending on whether or not I make a 20% downpayment?

Daniel Haberkost · Answer

@Joseph Griffith

To answer your first question, I've house hacked in a very cheap Midwestern market and a more expensive (but still cheap compared to many coastal cities) market. House hacking here in CO Springs is much easier as the demand for single room rentals is much higher. The house cash flows with me in it, I have fantastic tenants, negative vacancy and they're staying for the long term. Plus, the wealth building from amortization/appreciation is much more substantial and I'm not paying for it.

To answer your second question, I'm of the opinion that you should live where you want and build your business there (that's what I did) but that's not necessarily right/wrong. As you can see from @Brian Ellwood post, many people go with the out of state investing approach and do very well. The one thing that I think everyone will agree on it that you should live where you want to live (Colorado is hard to beat)!

So you should decide where you really want to be, then decide whether you want to just invest there or go out of state and take action accordingly. Plenty of people have been successful both ways, it's just a matter of putting in the time & effort.

-Dan

Joseph Griffith · Answer

Thank you, @Brian Ellwood, @Robin Krieb and @Daniel Haberkost

Brian Ellwood · Answer

Live where you want to live, where you'll have the most fun, and learn to invest long distance in markets that make sense for rentals. I live in CO and invest in TN and AL no problem.

Brian G. · Answer

@Jimmy Lieu VR = Vacation Rental

Jimmy Lieu · Answer

What is VR? I don't think I am familiar with this term!

Joseph Griffith · Answer

@Brian Gerlach Thanks, brother.

Brian G. · Answer

@Joseph Griffith the big difference is in expensive markets to pull of a house hack you have to get creative to pay for an expensive property: student rental, corporate housing, rent by the room, VR, etc. whereas you can break even in a less expensive market by simply placing a long term tenant in the unit/s.

Robin Krieb · Answer

@Joseph Griffith well obviously it means you'd need more money down in a higher priced area (20% of 500K vs 20% of 200K). Look at what you're likely to get for said property once it's fixed up (if that's what you're doing) or the set time you want to sell (in 3 yrs for example). A good realtor would be able to help you with that. Good luck :)

Joseph Griffith · Answer

@Brian Ellwood You think that's a good idea for a beginner? I can just move to where I'd prefer to live later.

Joseph Griffith · Answer

@Brian Ellwood Thanks. I have the freedom to move anywhere in the U.S. as long as I can afford it as an entry-level programmer and a major factor for me is the ability to build wealth for an early retirement. I want to live where I can build wealth and house hacking is purportedly an effective wealth-building strategy. I was actually considering Denver until I saw the median house price. Now I'm leaning towards St. Louis, Charlotte or Durham. Thoughts?

House hacking in high-cost areas versus in low-cost areas?

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