Househacking or Long Distance Investing?

Question

Reaching out looking for advice and would love to hear from those who have also lived in a HCOL area and contemplated which of the two strategies to pursue, especially as a 1st time investor.

Background: I live in Queens, NY making over 100k per year and am looking to purchase my first property in the next 4-6 months. My approaches to each strategy would be:Househacking: I’d target a two-family in Queens or Nassau County Long Island via an FHA loan. Purchase price range likely $600-725k and I’d live in one unit until I could refinance out of the PMI. At best rental income would likely only cover about 50-60% of the monthly payments. I can cover the rest without issue but this is a hefty expense.

Long distance: I’d target upstate NY (either Albany or Binghamton) where I’d look to purchase a cash flowing turnkey property for student housing (preferably). Purchase price range flexible from 100k to 300k depending on the numbers of the deal.

Other factors: I have a time consuming day job that often requires late nights and weekend work which will make me reliant on a property manager I can trust if I go the long distance route.

Any advice?

Andrew C. · Answer

I'm not sure what neighborhoods in Queens and Nassau you're looking into but it may be tough to find a 2-family in that price range.  But more importantly, would that be a neighborhood you want to live?  Since you mention working long hours including nights and weekends, do you want to live somewhere that adds to your commute?  I've struggled with the same dilemma as you.  I also have young kids so having a good school district is important to me.  So for now, I have a co-op in a neighborhood I want to live in and invest long distance (Buffalo).  I have been looking into a house hack recently as my family is outgrowing our co-op...but it's quite expensive in Queens/Nassau as I'm sure you know.

Riley S. · Answer

I am going through making the same decision as you right now, and despite everyone's advice for house hacking, I am starting with long distance investing. My reasons:

1. My local market is just way too expensive. I'm in a beach city in SoCal, so even with house hacking, my mortgage will still end up being twice what I pay now for rent. I worked through all the numbers of FHA and Conventional loans and it just doesn't make sense (plus I wouldn't even be able to afford it on a six-figure income) with current interest rates, so I will gladly rent until I can find a house hack deal that I can afford, which will most likely come from creative financing.

2. Long distance investing will not only appreciate for me, but will also bring me cashflow. Cashflow is out of the question with a house hack for me. Yes, there are struggles with long distance management and such, so make sure you have people you can work with to help you. Your team is what will make you successful or not. It seems all the stars are aligning for me in the market I'm looking in for long distance investments, so I'm choosing to do it first.

3. Down payment costs: 3.5% for FHA in my local market is about the same investment as 25% in my long distance market. I will end up having more equity in the investment and not deal with PMI as well. And I have a higher chance for a Cashout/HELOC refi with the equity in the long distance investment to continuing acquiring more properties down the line, which will add to my cashflow in the long run, and maybe one day be enough for me to buy where I actually want to live :)

Hope that helps you in your decision!

Danny Polanski · Answer

I would suggest house hacking where you live and can self manage to start.

However, at those prices, not sure it makes a ton of sense either. You would be positioning for appreciation. Are you cool with that?

Are 3-4 unit bldgs possible? I ask this because in Chicago 2 flats are higher priced per unit (usually) than a 3-4+ unit bldgs. Here, 2 flats are popular and attract families and prices reflect that

Michael Wallimann · Answer

@Robert Alexis as someone who has done both multiple times I would suggest the house hack method for your first property. Not only is it a super safe way to get in the game but the fact that you can continue to do it over and over again plus turn the previous property into a full rental while continuing to grow your portfolio is a very powerful technique. Once you get a couple under your belt then you could start looking upstate where there can be tremendous deals even on the MLS. At that point you'll be much more comfortable with being a landlord and you'll know what duties and qualifications you really want to look for in a property management company. You're in the right place (Bigger Pockets), playing the right game. I hope you update us on how everything turns out. Best of luck to you in all of your future endeavors!

Nicholas Coulter · Answer

@Robert Alexis i suggest the house hack. It really allows you to practice as a land lord and also as a new investor while saving on living expenses. I am not sure what the areas are like but I would imagine you might be able to find something with a small back unit you can occupy and rent out the front on an Air BNB. Should allow you to really increase your cash flow.

Nate Monson · Answer

Hi @Robert Alexis like many I would also recommend the house hacking route if you can pull it off. It's such a powerful way to kick off any young investors career.

However, if you are having trouble in your location finding something that will work I would love to be of assistance in the Albany, NY market. Long distance investing can be a bit scary but I work with a lot of investors from New York who are using property management (yes there are some good ones). So if you do want to look into the Albany market a little more feel free to reach out!

Robert Alexis · Answer

@Danny Polanski  Struggling to find anything more than a two family but will look into this. I don’t love the idea of focusing on appreciation especially given the fluctuation of the market these days but not fully opposed to it

Ceasar Rosas · Answer

@Robert Alexis

The Bronx, Bronx, Bronx.... If you can commute from here, it may be worth looking into. You can potentially get a 2 family with a basement(accessory unit) stay in that and rent out the other 2. Or boost your budget up and get a 3 or 4 family. Even places like Yonkers and New Rochelle can get you there, my only issue with those areas is that taxes are much much higher and it kills cashflow.

Damon Bodine · Answer

House Hacking for a few reasons.   #1 As a true first time home buyer you could be eligible for community bank/CRA loan programs that are based on  property census tract.   These can be better than FHA for a few reasons A) Traditionally lower rate normally 0.75%-1% lower than the average FHA 30 year fixed . B) Some of these loans the lender will exclude PMI from day 1.    C)  Down payments can be similar to FHA on a 2 Family.      . Take in you don't need to be a true first time home buyer to get an FHA loan but you almost always do to get a community bank loan.  #2. You'll get your own management experience.   There are plenty of people in NYC that work full time + but still manage to deal with the common tenant issues.  Can always hire a building super to offset some of the workload.   To me this will make you infinitely better at hiring down the road if you want to expand your portfolio.  #3 You're hedging against rent which for most is their highest expense.  You do pay a higher portion of interest in the beginning of a 30 year fixed loan but that said you're still amortizing every month.   #4  Often times investors write off as many rental property expenses as they can.   While this is great for your tax return its not always great for qualifying for future mortgages .  One of the things lenders use to approve you is debt to income ratio.  If you're showing losses on yoru taxes consistently that will hurt your DTI if when you decide to buy primary. Theres many more but i think those are some good considerations to start with.   Always happy to brainstorm with you if ever helpful.   We also host NYC house hacking happy hour every month if that was ever of interest.   Cheers

Dennis Nguyen · Answer

House-hacking would make sense to me... If you buy long distance you would still have to pay rent to someone else to live wherever you are which would impact your expenses every month.  Unless you are living for free now with your parents then I can see long distance investing working out.

Househacking or Long Distance Investing?

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