Take action or sit on the sidelines??

Question

Hi folks. I would love to hear your thoughts on the current situation we are in.

My wife and I purchased a primary residence in May 2022 in Ottawa for $510K. Our mortgage was $2K a month when we first purchased but now it’s about 3.1K due to the aggressive rate hikes and being on a the variable rate mortgage (hindsights 20/20 and of course we should have locked in at a lower fixed rate). We were not educated enough, we didn't have an investing mindset and we weren't thinking long term, which was our mistake.

Since we have become extremely interested in real estate investing, we want to house hack our next house purchase but we don’t know what to do with our current property. We can probably rent it for about $2.2 /2.3K but the delta between the mortgage and the rent would be still be around $900/1K+. We will would be cash flowing negative right out of the gate and that doesn't include other expenses.

My question now is, do we wait on the side lines for the next 6-12 months to see what happens with the rates before taking any action or do we continue to purchase a second property as a house hack and if the numbers work, we would eat up the negative cashflow on property #1 and pay our portion of the mortgage for property #2 for the house hack.  We can see if a short term rental would work in our area to improve cashflow for property #1. Selling would not be an option as we only purchased the property last year. For arguments sake, lets just say we would be comfortable in covering the remainder of the mortgage for property #1 and we’d be comfortable in paying our portion for property #2.

I should mention that we are pretty risk averse in general. We obviously don't want to take on more risk and leverage but we also don't want to have to wait on the side lines for too long. We are both 30 years old so we have a little bit of a run way. We want to buy and hold properties for the long term and we don't plan on quitting our jobs anytime soon.

I'm constantly thinking about ways to figure this out but I would love to hear peoples thoughts / feedback.

Thanks in advance.

Bruce Woodruff · Answer

My random thoughts:

1) No one ever got anywhere good by sitting on the sidelines.

2) Don't use one property to support another.

3) Yes, try to talk to your lender.

4) Don't do STR, now is not the time. Unless your property is really special.

5) There is a deal out there for you somewhere, just be smart.....taking risks is fine, but take smart risks...

Julie Toh · Answer

@Kamron Saghian I often hear REIs say that they don't regret buying, they regret selling. It may be too soon to offload property #1 but it's not too late to think how to add value to property #1. Add an extra room or bathroom? Be on the look out for the right property #2 one with a separate basement. Whether this will be your primary or a rental would depend on your mortgage affordabilty.

Eamon K. · Answer

Thanks for your input @Alan Asriants. Appreciate the feedback.

Alan Asriants · Answer

Talk to your lender about refinance or getting into a better loan program that can cut your costs down and gets you closer to 0 net cash flow. Consider buying another investment that could bring you cash flow to cover the increase in your mortgage. If you find a good deal, go for it.

Eamon K. · Answer

@Theresa Harris Thanks a lot for the reply. I agree. I don't think the prices have gone back up compared to where they were last May.

I think paying the 20% downpayment on the second property and the 30 year amortization for the second property on the mortgage is a good call, if we are going to go that route. This will free up the capital to make sure the first property stays a float and until rates start to stabilize more.

We want to focus on this next house hack in Ottawa for our next move but we would strongly consider checking opportunities out East in the future :)

Eliott Elias · Answer

It is always a good time to buy if you are finding good deals. Waiting on the sidelines will not benefit you. You should always be on the lookout, a down market is where you find opportunity.

Eamon K. · Answer

Thanks for the feedback @Julie Toh :)

We may be capped out on improving our current property even more but we are definitely going to focus on acquiring a great second property #2 while we still manage the lack of cashflow from property #1.

Thankfully there's many option in real estate and time will always make things better.

Eamon K. · Answer

@Bruce Woodruff Thanks for your feedback and thoughts. Its much appreciated :)

Eamon K. · Answer

Hey @Cody Neustaedter. Thanks for your input.

We technically could house hack our current property now but it will be less than ideal. My wife and I are newly married and we have an 9 month old kid with a cat and a dog. House hacking without a separate side entrance will be a little too invasive and uncomfortable. We didn't know about house hacking until late last year and we would have purchased a property with a side entrance if we had known earlier. Not a condo town home. Thats why we want to house hack our next proprty to lower our expenses. Hindsight is 20/20 of course. We would consider renting out the basement on the weekends as an air bnb but we would need to weigh up the effort vs rewards there to see if it will be worth it.

Take action or sit on the sidelines??

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