Buying $800k house and renting out

Seattle, Washington
House Hacking
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Buying $800k house and renting out

Crystal B.
Member since 2020 · 2 posts · 4 votes

Bought my first 2-bedroom condo in the Seattle area in 2021 for roughly $500k. My family is growing and we need a bigger space. We were thinking of house hacking- renting out current condo and getting a new house then after a couple years rent out the new house and do it again.

However, the next step up to a 3 bedroom that isn’t terrible is roughly $800k in our area. We can afford it and still be able to invest in rental properties with a higher mortgage (we invest in STRs). Problem is with interest rates, I’m not confident we would be able to rent out the $800k house in a couple of years when we want to upgrade to a new house. We’d be competing with houses for rent that are the same size, but bought years ago and have lower mortgages and therefore lower rent.

For those of us in markets like this, what do you recommend? Just sell the $800k primary when wanting to upgrade or is there some way to make it work by keeping it and renting it out? 


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Jonathan Taylor
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
3y

@Crystal B. you're in a good position and to reiterate what @Dave Skow posted, you can always refinance out of a higher rate of today if the rates drop in the future. Just compare rates of today to three or four years ago. Wildly different. 

The main focus should be the 800k purchase. You date the rate but marry the property. Good location/schools/amenities will attract the right tenant when you plan to move out. If the market rents aren't supporting the market rents, then sell and take the profits to the next home. 

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  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Crystal B.- thanks and good  summary   1)  you can  always look at  refinancing the 800K home before  moving out  should rates  be lower   2) take lower rate or  lower loan amt on  800K  home in order to  try to make the rent cover the mtg  3) if the  800K  home creates too much of a neg rent drag  ...sell it  ..make a profit ( hopefully ) and use the funds towards the  down payment of the next home  

    4Reply
  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    3y

    @Crystal B. you're in a good position and to reiterate what @Dave Skow posted, you can always refinance out of a higher rate of today if the rates drop in the future. Just compare rates of today to three or four years ago. Wildly different. 

    The main focus should be the 800k purchase. You date the rate but marry the property. Good location/schools/amenities will attract the right tenant when you plan to move out. If the market rents aren't supporting the market rents, then sell and take the profits to the next home. 

    5Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    This won't cash flow unless you're renting it out for 7k. 

    2Reply
  • Nathan Harden
    Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 378 votes
    3y

    It will be best to sell the $800k primary residence when that time comes. I do not see you being able to create positive cashflow out of that property, but it was a great appreciation investment.

    2Reply
  • Simon Ashbaugh
    Realtor · Columbus Ohio, Cleveland Ohio · Member since 2022 · 849 posts · 830 votes
    3y

    Id run some numbers as if you were to refi into a better rate down the road. Maybe pick a couple rates that have been common in the past and run them.

    1Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    Selling isn't always a bad idea. Because it is your primary residence, the money up to $500K if married, $250K if single is tax free. You could use part of the proceeds towards the next primary and the rest towards another investment property. What's great about real estate is that there are different ways to utilize your equity.

    Also we don't really know where rents are going to go in the immediate future. My prediction in these high costs, tenant friendly cities/states, is that rents will go up higher than expectations. You might be surprised by the results.

    1Reply
  • Ryan ThomsonBusiness Member
    Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Crystal B. you are talking about the newly dubbed "nomad" strategy of house hacking. If you haven't heard of that term it could be worth doing a deep dive on the forums/podcasts. 

    I agree with the others, It does seem unlikely that you will cashflow the 800k single family when you move out. 

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  • Sherief Elbassuoni
    Realtor · Bellevue, WA · Member since 2019 · 882 posts · 1k+ votes
    3y

    @Crystal B., you can always refinance the $800K home 

    3Reply
  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    3y
    Quote from @Jonathan Taylor:

    @Crystal B. you're in a good position and to reiterate what @Dave Skow posted, you can always refinance out of a higher rate of today if the rates drop in the future. Just compare rates of today to three or four years ago. Wildly different. 

    The main focus should be the 800k purchase. You date the rate but marry the property. Good location/schools/amenities will attract the right tenant when you plan to move out. If the market rents aren't supporting the market rents, then sell and take the profits to the next home. 


     Date the rate but marry the property. Never heard that one before but I love it!

    1Reply
  • Eric Yu
    Real Estate Agent · Seattle, WA · Member since 2019 · 243 posts · 246 votes
    3y
    Quote from @Crystal B.:

    Bought my first 2-bedroom condo in the Seattle area in 2021 for roughly $500k. My family is growing and we need a bigger space. We were thinking of house hacking- renting out current condo and getting a new house then after a couple years rent out the new house and do it again.

    However, the next step up to a 3 bedroom that isn’t terrible is roughly $800k in our area. We can afford it and still be able to invest in rental properties with a higher mortgage (we invest in STRs). Problem is with interest rates, I’m not confident we would be able to rent out the $800k house in a couple of years when we want to upgrade to a new house. We’d be competing with houses for rent that are the same size, but bought years ago and have lower mortgages and therefore lower rent.

    For those of us in markets like this, what do you recommend? Just sell the $800k primary when wanting to upgrade or is there some way to make it work by keeping it and renting it out? 



     Hi Crystal!

    There's still potential options / opportunities to find house hacks that could cash flow a little or be cash flow neutral at those price points. Selling isn't a bad option either as other posters have mentioned. 

    1 thing I'll say is that you could lean into Mid Term / Short Term rentals as well to juice up the revenue you get so you have higher cash flow. There's a bit of risk with this approach (e.g. economic headwinds + demand/supply imbalances), but it's something I've helped some of my other investor clients with. 

    1Reply
  • Dennis Nguyen
    Real Estate Agent · Seattle, WA · Member since 2017 · 150 posts · 80 votes
    3y

    I have seen some STR's in Seattle make $7K or more. Keep in mind a couple of years rents will naturally increase as well. When that time comes, if the rents do not cover your mortgage, you can at least sell and profit from your appreciation.

    0Reply
  • Michael HaasBusiness Member
    Real Estate Agent · Redmond, 🌧️ Seattle Investor-Agent | 🤑 Helped 400+ Clients Invest in Real Estate | 🏘️ Owns 23 WA Rentals & Airbnbs | 🏗️ Built 5 DADU's | 📈 You Can Do It Too · Member since 2016 · 724 posts · 3k+ votes
    3y

    @Crystal B. I would buy a $800k property that has the potential for a DADU, and build that out right away, or after you move out. Either condoize and sell (and pocket tax-free section 121 gains on the main house) or rent out both if they cashflow.

    Selling your primary residence, if you've lived in it for 2 of the last 5 tax years, can be very profitable as @Rick Albert called out.

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  • Hugh Zaretsky
    Real Estate Coach · New York City, NY · Member since 2015 · 2 posts · 2 votes
    3y

    Hi Crystal,

    These are good problems to have and there are lots of solutions at the time you want to sell or rent out your property in a few years. In your situation it is important to provide the right home for your family, first. If a 800K home is what your family needs then purchase it. Things have a way of working themselves out. We do not know where the market will be or what the latest real estate strategies will be in a few years. You also mentioned that you already invest in other STRs so this will not be your primary rental property. Remember, STRs really started only back in 2010.

    In a few years, you will have lots of options...

    1) SELL and take tax free profit up $250K single or $500K married to use to invest in future properties. Like  said above. 

    2) Leverage or refinance and use money towards whatever the new trend is in real estate investing. 

    3) Look at Midterm rentals or Lease Option as lots of people move in out of the Seattle area. 

    4) House Hack your place and run the numbers at that time. 

    5) and more.. 

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