House hack advice: buy now and refi or wait it out?

Question

Im in a unique position here, new investor. Have one investment property.

Im moving to a new market that I know decently well, looking to utilize an FHA and house hack with roommates.

My dilemma: The housing market here is slightly inflated right now, Im expecting for prices to drop. Househacking with roommates even at inflated costs will be cheaper than my other option which would be renting an apartment while I wait for houses to drop.

It it smart to buy when prices are high and expect to refinance 5-6 months down the line?

Anthony Vann · Answer

Every market is local, so it's difficult to answer in your particular situation. But I'll give you my general thoughts. In my area of Virginia, inflated might mean houses that were selling for 220k are selling for 260k. That's a big difference here. So, if you're going to be living in the area for 5-10 years and you have a deal where the roommates are paying most of the expenses, then the math is pretty simple. The extra 40k is about $200 a month on a mortgage payment over a 30 year amortization period.

Living in an apartment for $1000/month for 12 months= $12000

I doubt they'll be a significant drop in a single year but let's say SFH go down 10%. That 260k house is now around 235k. The drop of 15k is about $100 less a month on a mortgage payment over 30 years. So, yes your mortgage payment has gone down but you've paid a pretty big price.

Now, if you're in a large metro area and things can swing much more in a few years (450k to 300k) that calculation is a little different. But you get the idea. Just use a mortgage payment calculator and really see what these differences in price mean to your monthly cash flow.

Jaysen Medhurst · Answer

Why would you refi after losing value, @Shawn Wainsely? All that does is lower your LTV and possibly make your period with PMI longer.

Shawn Wainsely · Answer

Thanks for the insight. I shouldve clarified. I was referring to refinance based on loss of value of the home. I dont expect interest rates to be significantly less, lower 3% is still great. Im not renovating. Im referring to househacking as living in the house and renting out other rooms to help pay the mortgage. Not planning to Brrr or anything like that.

Im mostly speaking to the value of the home, if it drops significantly.

Jaysen Medhurst · Answer

No, @Shawn Wainsely. Honestly, I'm not following your logic. Why would you refi in 6 months and incur a second set of closing costs. Rates may come down a bit, but they can only go so far. Are you planning to add a lot of value? If so, how will you also househack? Your roommates won't want to live through a reno.

Risk adjust your offers.

Look into non-FHA, low-down payment mortgage products. This will reduce paperwork and no need to refi to get out from PMI in the futuer.