New REI looking to house hack vs. out of state invest

9 Replies

Hi BP community! I'm looking to start out as a REI on long island. I've been reading many books, attending weekly webinars on BP and LIREIA, and browsing the forums the past few months but this is my first post. My girlfriend and I were originally looking to house hack on long island so we can move in together as well as generate extra income, but with prices as high as they are, a lot of the ROI's I have calculated are either very low or negative percentages. One idea we've had is buying a SFH on long island that could potentially be a long term rental when we move out, as well as invest into a multifamily property in Connecticut that provides a higher ROI as well as generate cash flow while we are still living on the island. The caveat is that I will be attending medical school in 2022 and I'm not sure where I will be, so we would want to live in a house that calculates as a good ROI in case we can no longer live there while I go to school and decide to rent it instead of sell. Our goal is to purchase our first property by new years and then purchase our Connecticut multifamily property a few months after that.

Has anyone thought of a similar strategy/ have any thoughts? 

Looking forward to getting to know everyone and thank you for your time. 

Alex 

Hi Alex, I'm in a very similar situation in Dallas. Was initially looking to house hack but with the prices here almost everything is negative cashflowing. Now looking to get a SFH to turn into a long term rental and then shortly thereafter invest out of state... definitely interested to see others' thoughts on this.

Hi Alex, I'm living in a very similar situation, my girlfriend and I actually purchased a duplex as a house hack up in Connecticut. We used an FHA loan, so we didn't put much money down originally and when we ran the numbers, we didn't break even renting the one side and living in the other. But on a positive note, since we are going to live together anyway, its much more affordable buying a duplex as compared to, say a sfh, to live in. What is even better is that once we move out, we will cash flow more than $1,000 a month, plus your paydown and all the tax advantages we get as a landlord for half our house. I guess what I was thinking was that even if a house hack doesn't get you a positive result on a cash flow basis every month, its still better than having a place to live that will only cost me money until I sell. In Long Island where RE is pretty expensive upfront, just like in Connecticut, you probably are going to have a hard time, like I did, finding something move in ready that will cash flow enough to make money and still live in it. I don't know how handy you are or how much you would want to put into a remodel upfront, but that may still be something to consider.

Alternatively, if you are comfortable renting where you are, there are many places you can invest and cash flow, even out of state if your comfortable with that. OR you could also rent out rooms of a sfh which you would also live in (live in house hack), which can net you more monthly cash flow then renting one half of a duplex in the same market. I would run some numbers and see if you would be better off and what works for you. I feel as though every strategy in RE works, its just that some strategies are better for certain situations. A lot of it has to do with what your more comfortable with from a risk or living situation. But believe me, all three of these suggestions will make you money. All you need to do is focus on a strategy and execute to the best of your ability. The rest takes care of itself.

Hey Alex I'm kind of in the same boat but not ready yet to take the plunge (still saving for DP and reserves) But I am also on Long Island and have thought about house hacking in CT since LI prices are so high.

Hi Alex, it doesn't always have to be the "typical" scenario to house hack. You can get a SF Home, and rent out a room or 2 (depending on the size of the house) or if it comes with a basement, rent out the basement.  Be creative, and then when you're ready to move, you can continue to rent room by room with the existing tenant, or let the tenant know that you're changing the property into a whole house rental. So, the tenant can rent the place themselves, find roommates or move onto something else.  Good luck!

@Alex Kantor

We are a family of 5 living in North Seattle. From all we have read and listened to, house hacking is one of the easiest ways to get a high ROI. After running the numbers in our market it never made sense so we decided to start with long distance REI.

If a SFH works for you short term and when you rent it out it cash flows go for it! But that's never the case here where homes are $700,000+

We own two rentals but rent ourselves here because that’s just the way the numbers have worked for us now. Not sure if that helps. Good luck!

Hey Alex,

The first steps I would recommend as a new investor is to get a handle on analyzing the income, expenses and ROI of these properties in CT. Connecticut in general is in a sellers market. You will need to be creative in negotiating to get the price / terms you need.

You can use the Bigger Pockets calculators to start. Right now rents are strong, you can get $800 for a 1 bed, $1100 for 2 bed, and up to $1300 for a 3 bedroom. Use Zillow and rentometer.com to get data and analyze a few from your home to see what type of returns there are.

If these meet your investment criteria then start looking in person by contacting the listing agent.

Let me know if you have any questions.

-Craig Bellot

Hey Alex,

The key issue is your long term plan, not knowing what state/country medical school you will be attending in, Long Island is not the long term play for a rental. I live here so I know the ROI on a rental will not be your best return. Living here and staying narrow focused on LI rentals kept me from having a rental empire I should have started looking out of state earlier on. Home Prices - Taxes -Insurance on ling island force you to be in less desirable neighborhoods for better returns so If your going to house hack you have to be prepared to live in that area. Even with said if eventually you are going to move away form the area you will be forced to manage long distance so you might as well get used to doing it now and make more money.
Now if you had every intention of sticking around than I would give the house hack a better consideration as regardless of your long term play it would reduce your current living expenses. If you want to really make a go of it. House hack in a less desirable neighborhood of Long Island and lower your house expenses that way while also buying an out of state rental and now you've got it covered. Not sure where on LI you are living or interested in but for lower income house hacks on LI look at parts of Huntington Station- Deer Park- Shirley- Medford- levittown or like areas or even parts of the Hamptons depending on your commute. Happy to talk on phone if you would like to reach out to me.

Hey Alex,

Welcome to BP. In my opinion, I would wait until you start school and figure out your house hack from there. Generally with your first home purchase you have better financing options such as low down payment conventional loans (5-10% down). But, remember that low down payments do not make a good deal. Since the market is so hot right now, you run a high risk of jumping into a non-cash flowing property with a high purchase price. I would suggest you wait until you start school, then purchase your first house hack. Since you will be there 2-4 years, you can purchase your house hack in the beginning and stay there after graduating or move on and keep it as a rental. Good luck and let me now if you have any questions. 

Hey @Alex Kantor , you got a lot of great advice here! What did you decide to do? 

If your long-term goal is always going to be to buy multi-family property in Connecticut, then I see no harm in getting started now. Whether you are out-of-state or not, the only difference that creates is whether you will be self-managing or hiring a property manager.

As others have alluded to, if it is cheaper for you to rent wherever you go to med school and purchase the out-of-state multifamily to supplement your income while you are in graduate school, there is nothing wrong with that. I would have no shame in renting a property in an area I do not plan on staying in and being a property owner elsewhere.

Lots of people couldn't do it because their ego gets in the way, but just keep that in check and you will be fine.