House hacking vs out of market

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Kyle Cooper thank you for taking the time to comment. The uncertainty of covid and house hacking in such an expensive market helped fear settle in a bit. It feels like the wrong move will set me back a decade. I appreciate your vote of confidence.

Steven Zamorano

New to Real Estate · Los Angeles · Member since 2019 · 24 posts · 8 votes

Hello Kristle,

I came across this post and it motivated me. I love where your mind is at. I also live in Los Angeles, I am looking to get my first property here, but it is an expensive market. I continue to analyze deals everyday and make connections with people here on Bigger Pockets and in Meetups. I love the goal and I really hope you make it happen. Good Luck and I hope I can check in to see how you are progressing. Keep up the hard work!

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Steven Zamorano hi Steven, thanks for the comment. Glad it helped someone else in any way. Let’s push to the next level!!

Cole Simpson

Rental Property Investor · Columbia, SC · Member since 2020 · 302 posts · 186 votes

I always recommend house hacking to clients if they are willing to deal with the slight inconveniences. After you are house hacking and have your mortgage covered you will have the most options still open. We deal with a lot of clients in California because they feel like they can get a better ROI at a better price point long distance but either way house hacking is a great step one.

Todd Rasmussen

Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes

@Account Closed

Unfortunately, only you can decide what is the best decision for you, but make sure you also take into account the added expense of owning your residence versus renting. On the surface, reducing your living expenses plus adding appreciation sounds like a no brainer, but Property Tax, Insurance, Cap Ex, Repairs, Maintenance and vacancy are all going to chip into the $1,000 per month "advantage" that buying is offering.

Personally, we have owned two homes in southern CA (Our primary residence is only on the outskirts of LA and we owned a second home in Big Bear). We found that we can force about 3x more appreciation out of state that we have experienced in SGV. House hack is a great plan for a house you want to live in or for acquiring rentals in LA, but if you are content at the place you are renting then OOS might be a big contender.

Two years ago we started with 165K, and have multiples of that in appreciation and are probably going to experience between 20-30% cash on cash for the next year and a half or so. We are using the BRRRR strategy, so there's lots of liabilities, but as long as you don't show up in your best coast shirt and overpay by 25%, in my opinion OOS can be safer than investing locally when all aspects are considered.

Jon Schwartz

Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes

Originally posted by @Account Closed:

2021 Goal is to grow to 10 doors from 1, investing for cash flow.

I currently own 1 rental in San Diego that breaks-even because I stuck my retired parents in it, it's 60%LTV with $320k mortgage, worth $545k.

I rent in Los Angeles, $2,100 per month but am considering putting 5% down on a vacant 3 unit property to house hack that has the following:

2 bd/ 1.5 ba front house

2 bd/ 1 ba back house (1 bedroom is un-permitted per title reflecting this as a 1/1) - will rent for $2k

1 bd/ 1 ba adu - not sure if it was permitted - will rent for $1500

$850k with 5% down, Mortgage will be $4600

This seems like the best next step except the unpermitted aspects give me pause.

I pulled $100k out of my San Diego home to consolidate my student loans, but have yet to pull the trigger as I’m considering ways to put this cash to work and arrive at paying those off with the proceeds. This means I still have $800/ mo student loan payments.

I make $80k base salary and have $60k in savings

So in total cash I have $160k to do deals at the moment. Any advice on what the best path forward is to help me out of analysis paralysis and start growing?

1. Continue renting and invest for cash flow out of SoCal

2. House hack at $850k plus, considerations?

Your input is greatly appreciated

Kristle,

Fellow Angelino here. I'm a house hacker here and have one out-of-state investment.

I'm very big on house hacking in Los Angeles because living expenses are so, so high. Whether you rent or own, you'll be putting thousands of dollars toward your housing every month. I believe house hacking is an essential first step for LA investors because it brings that number down, allowing you to have more money to invest while building up equity in a coastal property.

I think of it this way: it looks like the house hack might save you $1000 off your current rent, right? How much out-of-state property would you need to buy to produce $1000 in cash flow? Since you have income from outside of real estate, using real estate to cut expenses isn't that different than using it to generate more cashflow.

I'm also really curious about your vacant triplex. Have you dug into the numbers in more detail? I made a house hacking spreadsheet when I bought my duplex last year; I'm happy to share it. Also, there are some smart things you can do with renting a non-permitted space as a short-term rental on Airbnb. You might be able to generate more income from the property than you think!

Best,

Jon

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Todd Rasmussen

Thank you for your input. This is exactly what I struggle with. I don’t want house hacking in the LA market to stifle my goal of 10 additional doors that cash flow. And out of market seems like the best strategy to attain this. Also finding vacant 2-4 units fully permitted has proved difficult in LA.

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Jon Schwartz very insightful. It’s the price point and fear the city will come knocking and throw fines and violations at me when I least expect it.

So technically this is a duplex on title but they’ve converted the garage into a 1/1 making it 3 units. I’d really like it if you shared your spreadsheet, thank you! I will message you me contact info.

Kenneth Donaghy

Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes

@Account Closed I love to answer "or" questions with, "Is it possible to do both?" "How can I do both?" "What will it take to do both?"

3 Reply

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Kenneth Donaghy fair point and definitely something I need to explore.

Todd Rasmussen

Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes

Originally posted by @Account Closed:

@Todd Rasmussen

Thank you for your input. This is exactly what I struggle with. I don’t want house hacking in the LA market to stifle my goal of 10 additional doors that cash flow. And out of market seems like the best strategy to attain this. Also finding vacant 2-4 units fully permitted has proved difficult in LA.

If you're looking for permission, yes you can invest out of state. Investing locally or out of your area all depends on your abilities as an investor. If the distance is the reason you fail, then you aren't cut out for REI anyways and should just be investing in something that is truly passive.

My wife and I host a networking event for out of state investors, it's virtual until covid concerns are reduced, but we are planning to transition back to in person whenever that is. You can sign up for our mailing list for invites at

https://www.surveymonkey.com/r... Next meeting is 1/5/20.

3 Reply

Robert Fitzgerald

Merrimack, NH · Member since 2020 · 6 posts · 4 votes

@Kyle Cooper

Fantastic response. As I read Kristies post I was trying to say what you said. Great response and great advice.

Good luck Kristie!

Steven Foster Wilson

Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes

Originally posted by @Account Closed:

2021 Goal is to grow to 10 doors from 1, investing for cash flow.

I currently own 1 rental in San Diego that breaks-even because I stuck my retired parents in it, it's 60%LTV with $320k mortgage, worth $545k.

I rent in Los Angeles, $2,100 per month but am considering putting 5% down on a vacant 3 unit property to house hack that has the following:

2 bd/ 1.5 ba front house

2 bd/ 1 ba back house (1 bedroom is un-permitted per title reflecting this as a 1/1) - will rent for $2k

1 bd/ 1 ba adu - not sure if it was permitted - will rent for $1500

$850k with 5% down, Mortgage will be $4600

This seems like the best next step except the unpermitted aspects give me pause.

I pulled $100k out of my San Diego home to consolidate my student loans, but have yet to pull the trigger as I’m considering ways to put this cash to work and arrive at paying those off with the proceeds. This means I still have $800/ mo student loan payments.

I make $80k base salary and have $60k in savings

So in total cash I have $160k to do deals at the moment. Any advice on what the best path forward is to help me out of analysis paralysis and start growing?

1. Continue renting and invest for cash flow out of SoCal

2. House hack at $850k plus, considerations?

Your input is greatly appreciated

Househacking is a great way to get started! I started this way while I was a sophomore at OSU here in Columbus OH. I used an FHA loan to buy a duplex, rented the rooms to my friends while I renovated. Then I rented it for top dollar, refinanced, and had enough money to go buy my second property, and still that duplex is net cash flowing over $1,500/month.

Steven Foster Wilson

Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes

Originally posted by @Account Closed:

2021 Goal is to grow to 10 doors from 1, investing for cash flow.

I currently own 1 rental in San Diego that breaks-even because I stuck my retired parents in it, it's 60%LTV with $320k mortgage, worth $545k.

I rent in Los Angeles, $2,100 per month but am considering putting 5% down on a vacant 3 unit property to house hack that has the following:

2 bd/ 1.5 ba front house

2 bd/ 1 ba back house (1 bedroom is un-permitted per title reflecting this as a 1/1) - will rent for $2k

1 bd/ 1 ba adu - not sure if it was permitted - will rent for $1500

$850k with 5% down, Mortgage will be $4600

This seems like the best next step except the unpermitted aspects give me pause.

I pulled $100k out of my San Diego home to consolidate my student loans, but have yet to pull the trigger as I’m considering ways to put this cash to work and arrive at paying those off with the proceeds. This means I still have $800/ mo student loan payments.

I make $80k base salary and have $60k in savings

So in total cash I have $160k to do deals at the moment. Any advice on what the best path forward is to help me out of analysis paralysis and start growing?

1. Continue renting and invest for cash flow out of SoCal

2. House hack at $850k plus, considerations?

Your input is greatly appreciated

House hacking is a great way to get started! I started this way while I was a sophomore at OSU here in Columbus OH. I used an FHA loan to buy a duplex, rented the rooms to my friends while I renovated. Then I rented it for top dollar, refinanced, and had enough money to go buy my second property, and still, that duplex is net cash flowing over $1,500/month.

Maxwell Ventura

Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes

@Account Closed

Hi, it really comes back to your goals. Are you looking for more cash flow up front for future value ads and projects? Or looking to park your money into something for a while that will end up growing in value at a faster rate via appreciation.

Looking to live in? or Pure investment.

Happy to help. Thanks

Darcy Reynolds

Real Estate Agent · NJ · Member since 2020 · 40 posts · 26 votes

@Account Closed I love your openness to discuss your situation in detail, it is great for those of us learning the ropes. I currently live in Manhattan and am facing a similar situation where I'm evaluating the best next step to take. Thanks for sharing your story, best of luck to you!

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Todd Rasmussen I’ll definitely join, thanks

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Steven Wilson now that’s a motivational story, thanks for sharing.

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Maxwell Ventura

Ideally it’s to live in since rents are so high. I figure that money should go towards RE investing for me vs my landlords. Currently the money is parked so I need to put it to work.

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Darcy Reynolds glad it helps :)

Maxwell Ventura

Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes

@Account Closed

That's the idea! Your rent payment is 100% interest!

A live in house hack with little money down will give you the best return on your money. Doing so in a duplex OR SFR w/ a value ad play is a great option here in San Diego right now w/ the current state of the market. Taking advantage of one of SD's best qualities -> Appreciation and a much higher return on your initial investment when coming in w/ little $ down.

In regards to location, there's a much larger portion of small multifamily properties all throughout the metro area and South Bay. Oceanside, Carlsbad and Vista are also areas with opportunity in North County.

You have the ability to leverage yourself in a very favorable position w/ low money out of pocket and have a portion of mortgage paid by a tenant(s) while your home continues to appreciate. Not only that, value add's are a hot commodity here and it's easier to force appreciation than most places.

Lastly, I would encourage you not to put too much emphasis on cash flowing as soon as you move out. The few hundred dollars in cash flow will be insignificant to the growth of your return via SD's stellar appreciation. SD actually has great rental cash flow, just not INITIAL cash flow.

Avg annual rent increases are between 3-4% and an increasing rental market will follow along the same trajectory as an appreciating market.
This is much better grasped on a spreadsheet when looking at total return (cash flow, appreciation, tax savings, principal paydown) over time.

Hope this helps.

OP

Los Angeles, CA · Member since 2018 · 15 posts · 16 votes

@Maxwell Ventura thanks. My current San Diego property is SFR. I'm looking at the house hack in the LA market and everything under $850k is pretty old and sketchy, so it gives me a little anxiety.

Peter Eberhardt

Investor · San Diego, CA · Member since 2017 · 84 posts · 107 votes

@Kristle M. Don't forget you have a huge card to play with OO financing and lax ADU laws in CA. I am so thankful some fellow BP took the time to reach out and talk me off my plane to Columbus. I had been networking with people out of state for months and was two days away from hopping on a plane to go buy my first two deals. Look again at the real numbers between your two numbers and best of luck! Happy to help shed any more light on a more creative perspective.

Alexandre Marques dos Santos

Rental Property Investor · Member since 2020 · 215 posts · 137 votes

@Kristle M.

The plan looks to be solid. I miss the interest on your student loan.

If you decide to house hack you will have the following expenses:

800 ( student loan)

4600 mortgage

Y mortgage in san Diego?

And revenues: 3500 plus salary. Remember taxes and maintenance...

Plus putting 5% down, you will have around 110k cash ( considered some as closing costs)

Looking at your situation i would consider to pay down the student loan. They usually have high interest rates and pushes your expense to top. But you need to look at the interest you are paying to decide which debt is worthy to reduce.

I believe you are compromising a fair amount of income per month, and seems to be risky.

On the other hand the 3 doors that cost 850k for an income of 38000 minus tax and maintenance does not seems to be attractive.

Are you playing capital appreciation game? Cause the return on the investment fails on my metric to invest.