Buying first home with the idea to rent out in about a year or 2
Hey all, second post here. So my wife and I are looking to purchase our first property, we looked into house hacking a duplex/triplex in the Portland, OR area and with prices the way they are in our area it's pretty unreasonable to get anything in our price range. We're looking at single-family homes preferably with an ADU, finished basement, ie hoping we can still house hack. Our other thought is to find a reasonable townhome/single-family home/condo in a growing/good neighborhood that would be great for a rental property when we move out in a year or two.
@Pax Magaway I am a huge fan of the live in starts. whether you have remodel or a house hack component either way it is a great way to get started and learn the house before having tenants in it.
Congrats on nailing down your strategy and taking steps the right way!
aim for occupying it for 2 years then renting for 3 years then evaluating whether or not you want to sell before the 5 year mark to take advantage of the capital gains tax exemption unless you plan on holding very long term. 1031 exchange would be your go to at that point or cash out, pay the taxes, and do something else with your money.
Quote from @Chris Davidson:
@Pax Magaway I am a huge fan of the live in starts. whether you have remodel or a house hack component either way it is a great way to get started and learn the house before having tenants in it.
Congrats on nailing down your strategy and taking steps the right way!
@Chris Davidson thanks for the advice! Live in starts, meaning live in one part of the home and rent out the other like house hacking? Or get into a property with the intention of improving it, move out after a year or two and rent it out?
@Pax Magaway live in starts are owner occupier starts. Some folks do house hacks, others it doesn't fit their life style but may do a live in rehab and move on and leave as a rental or sale and roll the cash into something else.
However what @Sergey A. Petrov mentioned is key. If you are not planning on holding for long term if you live in for 2 years you can most likely avoid all capital gains. If you are planning on holding for long term and rent out staying for 2 years isn't needed.
IMO for a house hack live as long as you need and move on to the next if you are doing a live in rehab if you can make it for two years that can be huge gains as you can rent for 3 years and sell without having to pay capital gains on 500k if you are married.
@Pax Magaway House hacking is a great way to get started investing and purchase your primary residence at the same time. Since the rent from the ADU or finished basement will help cover part your mortgage, this allows you to save the extra money towards a down payment on your next investment property. I believe house hacking is one of the best strategies for new investors to start building wealth and began their journey towards financial freedom. This of course, all depends on you finding the right property for your situation where the numbers make sense for you and your goals!
Quote from @Sergey A. Petrov:
aim for occupying it for 2 years then renting for 3 years then evaluating whether or not you want to sell before the 5 year mark to take advantage of the capital gains tax exemption unless you plan on holding very long term. 1031 exchange would be your go to at that point or cash out, pay the taxes, and do something else with your money.
This is what I am doing. I moved from Portland last year and I am renting out my house there. We'll see where the rental/housing market is in about 1.5 years. If the ROE on the property isn't very high then I may sell and reinvest in other properties. Especially if we are in a down market. It may be hard to justify though, even with a low ROE, due to the changing market conditions. The pros of the property are that I have a HELOC on the property that allows me to pull some equity out and the interest rate on the mortgage is 2.5%. I may have to trade that mortgage for other mortgages at much higher interest rates, which will cut into profit.
Right now I am leaning towards holding forever, but I want to keep my options open. In the end, it will be all about the math and opportunities.
Quote from @Dallas Regimbal:
@Pax Magaway House hacking is a great way to get started investing and purchase your primary residence at the same time. Since the rent from the ADU or finished basement will help cover part your mortgage, this allows you to save the extra money towards a down payment on your next investment property. I believe house hacking is one of the best strategies for new investors to start building wealth and began their journey towards financial freedom. This of course, all depends on you finding the right property for your situation where the numbers make sense for you and your goals!
Yes, it is such a great way to put little money into a great performing asset. My wife and I wish we had done it before the kids were born. Or at least bought a new house every year with a low DP so we could have multiple rentals. Now with kids, we don't want to move them around from house to house so we don't cause some sort of psychological damage haha.
@Pax Magaway Congrats on your new home! I am doing the same strategy. I just purchased my first home in April, and hoping to rent it out in a couple of years.