First investment: SFH house hack vs out of state investing

Real Estate Deal Analysis & Advice
8yFollow

First investment: SFH house hack vs out of state investing

Account Closed
Nashville, TN · Member since 2018 · 4 posts · 1 vote
Hey BP! I’m just getting into the real estate investing world and have had a blast bridging my learning curve so far. My girlfriend and I have discussed getting married and beginning the REI journey. We live in a hot market (Nashville), and are contemplating a couple options. Would value your advice. For context, I have about 30k saved to make my first investment this year. Scenario 1 Move into her place and pay $1,000 in rent, then start investing in out of city/state SFH or MFH around the 100k range. Scenario 2 Use FHA loan to purchase a nashville property which we would renovate the basement to have a live in tenant. Price tag would probably be in the 250k-350k range. It seems like a SFH would be the most affordable option to house hack, and we’re okay with the lifestyle choice. I haven’t seen many duplexes or triplexes in the nashville market. My concern with scenario two is if the ROI would be worth it. Does it make sense making that investment at a peak market? I don’t know much about the tax benefits, or lack of for both options too. With scenario two, would a higher debt to income ratio make it more difficult to obtain future loans? Thanks!! Taylor
1Reply
49 views

Most Popular Reply

Andrew Kerr
Rental Property Investor · Everywhere, USA · Member since 2012 · 689 posts · 525 votes
8y

@Account Closed - go with the house hack. And if it was me at your age, on the scenario above, I would live in the basement and rent out the upstairs (which I assume is larger and would rent for more). Then buy the house in only your name. Then let your girlfriend move in with you. Let her live rent free but have her pay the utilities, or something like that. Then hopefully you are living rent/housing cost free, and she drastically reduced her housing costs. Then you both save money like crazy for paying down debt and/or investing further.

Then as far as the market question, I feel like we are closer to the top than the bottom. But you can still find good deals. And if you are trying to sell a place in the next two years I would be more concerned, but if you buy with a 10-15 year horizon then you can ride out any corrections in the market. I say this as maybe you don't want to live in this first house hack for 10-15 years, but buy a place you could hold for 10-15 years. 

1Reply
See this reply in the discussion

8 Replies

Jump to latestLatest
  • Andrew Kerr
    Rental Property Investor · Everywhere, USA · Member since 2012 · 689 posts · 525 votes
    8y

    @Account Closed - go with the house hack. And if it was me at your age, on the scenario above, I would live in the basement and rent out the upstairs (which I assume is larger and would rent for more). Then buy the house in only your name. Then let your girlfriend move in with you. Let her live rent free but have her pay the utilities, or something like that. Then hopefully you are living rent/housing cost free, and she drastically reduced her housing costs. Then you both save money like crazy for paying down debt and/or investing further.

    Then as far as the market question, I feel like we are closer to the top than the bottom. But you can still find good deals. And if you are trying to sell a place in the next two years I would be more concerned, but if you buy with a 10-15 year horizon then you can ride out any corrections in the market. I say this as maybe you don't want to live in this first house hack for 10-15 years, but buy a place you could hold for 10-15 years. 

    1Reply
  • Account Closed
    OP
    Nashville, TN · Member since 2018 · 4 posts · 1 vote
    8y
    Andrew, thanks for the good advice. I’ve been thinking more about this and it seems like a multi family house hack would be the way to go with using a 203k loan, or potentially renovating a SFH for another tenant. Do you know of any resources that explain the accounting of SFH and MFH house hacks? In particular, I’m interested in knowing at what point rental income can be calculated as well as strategies to reduce my debt to income. I’m thinking with either option in the Nashville market, my debt to income ratio will be pretty high, and I don’t know if I could get a mortgage for a 2nd property without creative financing. Thanks!
    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    8y

    @Account Closed I don't know nashville, but I have gone down both roads! 

    I would say the big factor is how badly do you want to own a home. If the answer is "not that badly" then investing out of state, or in other markets at discounted prices, will hands down give you a higher return on your dollar. 

    350k in a lot of midwestern and southern markets will get you 8-12 C- to C class units with 600-700/mo rents per unit, and you will likely be able to purchase them with financing just like you would your SFR. Without really crunching the numbers you can see a disproportionately higher return if you invest in a certain type of asset.

    1Reply
  • Account Closed
    OP
    Nashville, TN · Member since 2018 · 4 posts · 1 vote
    8y
    Elliot, thanks for the great feedback. One of the pros of investing locally is tapping into my current network. I’m a Nashville native and my dad is an architect and contractor in the area. It seems at the end of the day it should boil down to the numbers. I’ve yet to do a thorough analysis of multiple options, or deeply study out of state markets. I also don’t know much about the tax implications for in state, out of state, SF/MF house hack, etc. Any recommendations for resources would be appreciated. I think a pro for out of state would be more doors, especially considering my debt to income ratio (working with 65k salary but having minimal expenses). Is it accurate that in order to count rental income for mortgages you have to wait two years? As far as lifestyle choices, we’re pretty flexible with where we live at this stage in our lives m. Thanks again. Taylor
    0Reply
  • Account Closed
    Rental Property Investor · Sacramento, CA · Member since 2015 · 1k+ posts · 893 votes
    8y
    Originally posted by @Account Closed:

    Elliot, thanks for the great feedback. One of the pros of investing locally is tapping into my current network. I’m a Nashville native and my dad is an architect and contractor in the area. It seems at the end of the day it should boil down to the numbers. I’ve yet to do a thorough analysis of multiple options, or deeply study out of state markets. I also don’t know much about the tax implications for in state, out of state, SF/MF house hack, etc. Any recommendations for resources would be appreciated.

    I think a pro for out of state would be more doors, especially considering my debt to income ratio (working with 65k salary but having minimal expenses). Is it accurate that in order to count rental income for mortgages you have to wait two years?

    As far as lifestyle choices, we’re pretty flexible with where we live at this stage in our lives m.

    Thanks again.

    Taylor

    Then by all means take advantage of the connections! What are your thoughts on purchasing a house in kinda janky condition to rehab/refi then move into. That might be a nice way to not tie up a lot of your cash if you can refi out of a little private money (which I'm sure you can find if you're connected in the area and have reliable contractors in the family). That way you don't have to choose! You can house hack, and invest in a secondary asset.

    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    8y

    @Account Closed

    I have a house hack opportunity for you if interested. You can have immediate equity as I can pass on a direct sale savings to you.

    Let me know if interested. 

    0Reply
  • Taylor Cochran
    Nashville, TN · Member since 2018 · 8 posts · 3 votes
    8y

    @Account Closed I think doing a cash out refinance would be an excellent   option, and could jump start my investing career. Thanks for the feedback. 

    1Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free