house hacking to get in an expensive market
Rental Property Investor · Edmonton, AB · Member since 2022 · 61 posts · 15 votes
house hacking to get in an expensive market
Most Popular Reply
Calgary, AB · Member since 2021 · 327 posts · 176 votes
2yQuote from @Ian Dale Ibrado:
Hi everyone! Looking for your opinion. Im from Edmonton, Canada and I have just recently closed on my 3 unit suite and want to keep my momentum going. Im thinking of renting out my primary which will cashflow $650 (no management fee, self manage) because of low interest rate i got it for 2% which still has 2 years before rates renew. When it does, if at 5%, I'll be breaking even. Heres my thought, I want to purchase my next primary as a house hack. Buy a primary with a basement suite but wont entirely cover my mortgage. My mortgage will be still around $1800 but will allow me to control an asset worth 630k. Wife is telling me to slow down. I want to keep momentum going. These primary residences will then be just for appreciation.
What are your thought?
Thanks
I would just suggest for you to do a deemed disposition of you have significant gains on the current primary. When you turn your primary into a rental you will lose the primary residence exemption. So you want to lock in the gains as tax free gains before turning it into a rental.
10 Replies
- Calgary, AB · Member since 2021 · 327 posts · 176 votes2y
Quote from @Ian Dale Ibrado:
Hi everyone! Looking for your opinion. Im from Edmonton, Canada and I have just recently closed on my 3 unit suite and want to keep my momentum going. Im thinking of renting out my primary which will cashflow $650 (no management fee, self manage) because of low interest rate i got it for 2% which still has 2 years before rates renew. When it does, if at 5%, I'll be breaking even. Heres my thought, I want to purchase my next primary as a house hack. Buy a primary with a basement suite but wont entirely cover my mortgage. My mortgage will be still around $1800 but will allow me to control an asset worth 630k. Wife is telling me to slow down. I want to keep momentum going. These primary residences will then be just for appreciation.
What are your thought?
Thanks
I would just suggest for you to do a deemed disposition of you have significant gains on the current primary. When you turn your primary into a rental you will lose the primary residence exemption. So you want to lock in the gains as tax free gains before turning it into a rental.
- Rental Property Investor · Edmonton, AB · Member since 2022 · 61 posts · 15 votes2y
How do we go about doing so? How can we lock gains as tax free?
- 2yDave MeyerPro MemberHead of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes
This question can be answered with math. You need to compare your cost of living, and overall personal cashflow each money with your current situation vs. this potential new acquisition. What are you coming out of pocket today? Are you cashflow positive? Will you have more or less cashflow per month (including your income from a job) before or after this perspective deal. Run the numbers and you'll know what to do.
If your giving up money just to 'control an asset' -- I'd think long and hard about that. I've never bought into the idea that 'controlling' an asset means anything. Is it making your money today (in the form of cashflow, amortization, value-add, whatever)? If you're losing money on the deal, just to 'control' and asset, I think the asset is probably going to be controlling you.
- Rental Property Investor · Edmonton, AB · Member since 2022 · 61 posts · 15 votes2y
Hi @Dave Meyer, im a huge fan of you guys. im i truck driver and listen to bigger pockets during my 14 hour shift. real estate changed my life.
Going back to my inquiry, if we move into a next primary, our cost will remain the same. when our current primary residence rates becomes 5% we'll be break even but then we'll be paying the same amount of mortgage on the new property with tenants in the basement. As my wife and I figured out, living in our current primary, we barely go to the basement.
thanks
- Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes2y
People have already provided great input, so I will touch on your comment your wife said.
You really need to sit down with her and explain the short term and long term goals. I agree, you shouldn't slow down. I don't know how old you are, but I would put that in perspective. What I explained to my wife is the work we are putting it now on these properties isn't for today, it is for the future. By the time we are our parents' age, our properties could be paid off/cash flow well, and we are sitting in an amazing position.
You can also set goals. For example, for every property you buy, cash flow can go towards something. For example, "hey wife, we just bought this property, let this be the travel fund. We can put the net proceeds in a savings account and use that towards our dream vacation." It is a compromise but you need to explain that this is important for you and WHY this is important.
- Rental Property Investor · Edmonton, AB · Member since 2022 · 61 posts · 15 votes2y
Thanks for your response. We both agreed that homes will continue rising and that weve seen it first hand at vancouver. relatives have bought homes for 200k and sold at 1.8m 3 years ago. I told her we need to own 2 residential for our 2 little ones because given 10 to 15 years time that its their time to buy, homes that were looking at will cost 850k to 1.2m. If we buy now, our kids wont be renters for life. were both 39 y.o
- Calgary, AB · Member since 2021 · 327 posts · 176 votes2y
Quote from @Ian Dale Ibrado:
How do we go about doing so? How can we lock gains as tax free?
You can get an appraisal done and do a deemed sale at the appraisal price with a lawyer. That way you have a pretty solid paper trail if you ever get audited. This will incur some costs (appraisal around $500, lawyer is probably around $1000-1500). Some people will forgo the lawyer part and just do the appraisal.
You have a mortgage on the house so I don't know if you can do the deemed sale part. So I would say bare minimum so an appraisal so at least you have something to defend your position.
- 2yCody NeustaedterPro MemberReal Estate Agent · Winnipeg MB, Canada · Member since 2021 · 108 posts · 34 votes
Quote from @Ian Dale Ibrado:
Hi everyone! Looking for your opinion. Im from Edmonton, Canada and I have just recently closed on my 3 unit suite and want to keep my momentum going. Im thinking of renting out my primary which will cashflow $650 (no management fee, self manage) because of low interest rate i got it for 2% which still has 2 years before rates renew. When it does, if at 5%, I'll be breaking even. Heres my thought, I want to purchase my next primary as a house hack. Buy a primary with a basement suite but wont entirely cover my mortgage. My mortgage will be still around $1800 but will allow me to control an asset worth 630k. Wife is telling me to slow down. I want to keep momentum going. These primary residences will then be just for appreciation.
What are your thought?
Thanks
Even if you don't break even on a house hack it can still be worth it because money you save is less money you need to earn (that gets taxed) which can really improve your financial picture. As long as you don't increase your total current expenses to obtain another property. Think about it as an entire portfolio vs independently for each property. If your new primary costs you $1800/month after the basement is rented out but you can rent out your previous primary for $1800/month and you are in the same financial picture then it is definitely worth it!
Side note: Anybody else get some serious "fan girl/boy" energy when people like @Dave Meyer comment on these posts. Awesome to see.
- Rental Property Investor · Edmonton, AB · Member since 2022 · 61 posts · 15 votes2y
That was exactly my point but after I pondered on it a for a few days it wasnt within my "why". it wouldnt get us closer to our goal which is 15k cf per month. As of now, it is better to do things that help us get closer to our goal.
The real reason why I wanted to do this, its more than just breaking even. We both agreed that homes will continue to rise in value and that weve seen it first hand at vvancouver. My relatives have bought homes for 200k and sold at 1.8m 3 years ago. I told her we need to own 2 residential for our 2 little ones because given 10 to 15 years time, homes that we're looking at will cost 850k to 1.2m. If we buy now, our kids wont be renters for life.
- New to Real Estate · Dallas, TX · Member since 2024 · 24 posts · 27 votes2y
Considerations:
Cash Flow Management:
While you’re currently cash flowing positively, consider the impact of potential rate increases. It’s wise to have a financial buffer in place to handle increased mortgage payments when your rate renews.
Risk Assessment:
Assess the potential risks, such as market fluctuations, vacancies, and maintenance costs. Make sure you’re prepared for these challenges, especially if your cash flow margins are tight.
Spousal Agreement:
It’s important to have your spouse on board with your investment strategy. Having a unified approach can help manage stress and ensure you’re both comfortable with the financial decisions.
Market Research:
Thoroughly research the market and neighborhoods where you plan to buy. Ensure the area has strong rental demand and good appreciation potential. This can help you make informed decisions and maximize your investment.
Keep your wife’s concerns in mind and ensure you both feel confident in the path forward. With careful planning and prudent management, you can achieve your investment goals and build significant wealth through real estate.
Best of luck, and keep us updated on your journey!
Join the conversationCreate a free account to reply, vote on answers and follow this thread.