Wait or house hack now?

Question

Hey Bigger Pockets Community,

I'm excited and ready to hop into my first house hack. There are reasons I'm concerned.

The first is that I think the real estate market may drop. If it does I will regret not getting in at a better price point. Also, I'm worried about purchasing a property with tenants that are not paying.

I know the stars are never going to align perfectly but should I wait till the end of this year to see what happens with this whole coronavirus situation?

Thoughts?

Thanks!

Jon Schwartz · Answer

It's totally true that being upside-down on your mortgage doesn't matter so much if you bought for cashflow and you're still cashflowing. So long as your cash-on-cash return remains in an acceptable range, the value of the property in that moment doesn't really matter.

I would consider two things when making this decision:

The first is that you should be prepared for the environment we're in. I was talking to a client today about this exact issue, and my advice to him was to wait because he was planning on putting his entire savings into a property. That's a really bad idea right now. You should have enough reserves to weather another 6-9 months of nonpayment from tenants. What happens if there's another wave of COVID in the fall? What happens if the federal stimulus stops abruptly? We can't stop uncertainty, but we can (and must) be prepared for the worst foreseeable scenario.

Secondly, if you're buying for cashflow and are reasonably prepared for nonpayment or taking on new tenants at a reduced rental rate, then a drop in prices really translates into a lengthening of your timeline. In theory, you hold a cashflowing property until the return on equity drops below an acceptable range. Ideally, that happens fast so that you can sell and put your equity to better use. If prices are going straight up, this will happen fast. But if you have to wait for prices to drop and then go back up, you'll have to wait a little longer.

So if you're buying something for a long hold, a "set it and forget it" proposition, it's not a terrible thing to buy now before prices soften in the next year, which many forecasters predict. If you're planning to hold for the longterm, go ahead and buy. But if you're buying with the intent to sell in three years, wait.

Good luck!

Christine Gee · Answer

Matthew, I feel the same way with so much uncertainty. Previously, I bought at the top of the market and was upside down on my mortgage for around 8 years. I look forward to reading other people's thoughts on this. Thanks for posting!

Zachary Ray · Answer

I wouldn't continue to wait as analysis paralysis may creep in and next thing you know years have passed and you may not be in a situation to house hack anymore I.E kids or perhaps you move to an area that doesn't have many multi family deals that work out on paper. The market will always go up and down but since you are house hacking for the buy and hold game, just hold it longer than the dips and you will be fine. House hacking can put you so far ahead because of the ability to have your entire mortgage covered or majority of it being paid by others. That frees up monies you can use to pay down debt and save for the next investment.

Peyton Griffin · Answer

Great question, I really just wanted to see all of the comments because I have had this question running through my mind recently.  I am also looking for my first house hack, I saw you asked whether to do a condo or a house so I wanted to throw in my thoughts because we are in similar positions. I am looking for a duplex that needs very little work to no work, I am still considering a place that needs work you just need to keep in mind having reserves for vacancy while the rehab is going on. Also if you have no idea how to estimate rehab cost, you'll have to find someone who can help you through that a process. I do not plan on waiting for the market to dip before I make my purchase because I will be playing the long term game with my first property. I hope that kind of helps a bit.

Best of luck!

Matt Lewis · Answer

@Matthew Masoud - Hey Matthew!

Just do it now while credit is available and interest rates are low.

After any recession that may happen your appreciation will bounce right back.

Cash-flowing, house-hackers are the ones who will weather any storm no problem.

Worst case scenario, turn the living room into another bedroom for additional cash flow.

Christine Gee · Answer

@Zachary Ray I totally forgot about rentometer. The hoa fees are higher than the ones on the house. I will use the calculator to see how it works out. I wish I had someone local to partner with on all of this. :)

Christine Gee · Answer

@Peyton Griffin these are terrific tips. If it is a house I would move into it and fix up minor cosmetic issues. I will need to get with my realtor as he has a recommended contractor in case I need more done. It's great you are diving into things, and I am going to try to do the same once I figure out the numbers. Thanks for your help!

Zachary Ray · Answer

@Christine Gee , Be sure to check out the fees that will come with a condo. Maintenance on them can really add up as they have landscaping and other stuff usually built into the price. Also add up the taxes on it as that can usually make or break the deal. The bigger pockets calculators are great for running the numbers on the deal, as well as www.rentometer to check local rents you can charge in the area to get the estimate of what you will be bringing in.

Christine Gee · Answer

@Zachary Ray do you recommend buying a condo or house? I want to get a house fix it and rent it. It is expensive so I was thinking of a 1 bedroom condo to rent and Air when covid ends.

Christine Gee · Answer

@Matthew Masoud that's true! My mortgage was an adjustable rate one, so it was a struggle for me as it went up. The rates are super low now, and I am looking to be in it for the long term. It was just super frustrating to be upside down for so long. It is all good now, though. :)

Wait or house hack now?

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