Author Topic: Could all the buzz about house hacking really be...  (Read 2280 times)

El_Viajero

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Could all the buzz about house hacking really be...
« on: October 26, 2020, 04:48:48 AM »
...due to the fact that nobody can buy "normal" profitable real estate properties anymore?

Seriously, where are the markets where a 30 or 40-something with a family can currently buy an investment property that meets the 1% rule? It seems like being an unattached 20-something who can buy a cheap house and rent out the other bedroom is pretty much the ONLY way to get into real estate investing these days and actually be successful. Am I wrong?

I don't mean that derisively, by the way. I was once a young transient myself! I wish I'd known more about RE back then because I probably would have done the house hacking thing.

But for those of us who aren't in a position to house hack, it seems like the only option is to wait until market conditions become more favorable for investors (e.g. some calamitous and unfortunate RE market price correction). I might be wrong, of course. Thoughts?

Also: Feel free to PM me your hot insider tips on good markets to buy RE right now! Lol. Kidding. Kinda...

Jon Bon

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Re: Could all the buzz about house hacking really be...
« Reply #1 on: October 26, 2020, 06:29:23 AM »
I don't disagree.

But if you want to make money you should sell your house and rent. If you own a house of course (Note: I don't do this either).  There are fantastic deals out there for renters compared to owning. The property owners seam to be willing to heavily subsidized rents. This is especially true in hot markets.

Makes me think that all the monkey business done be the feds and fed is having the desired effect of increasing RE/Asset prices but not pushing up rents which would hurt middle/lower income class folks. So I guess there are worse outcomes?

Yes you can't really buy a decent income property these days unless you find a unicorn of course.

waltworks

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Re: Could all the buzz about house hacking really be...
« Reply #2 on: October 26, 2020, 06:52:06 AM »
P/E for the S&P is what, 35 right now?

There aren't good deals on anything out there, RE included. C'est la vie.

-W

Malcat

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Re: Could all the buzz about house hacking really be...
« Reply #3 on: October 26, 2020, 07:01:05 AM »
I'm kind of confused about what you are asking.

Are you asking if people are house hacking because real estate is too expensive? Well, yeah.

Or are you asking for tips on house hacking because housing is too expensive???

I'm kind of confused.

El_Viajero

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Re: Could all the buzz about house hacking really be...
« Reply #4 on: October 26, 2020, 10:40:31 AM »
I'm kind of confused about what you are asking.

Are you asking if people are house hacking because real estate is too expensive? Well, yeah.

Or are you asking for tips on house hacking because housing is too expensive???

I'm kind of confused.

I was just thinking out loud about the how the house hacking concept has become so prominent. I mean, it's even the subject of the most recent MMM article.

It just seems like not as many people would be interested in this if it were easy to buy a single family home in a decent neighborhood and rent it out at a profit the old fashioned way. Kind of like how we wouldn't have to squeeze oil out of the Athabasca tar sands if there was still plenty of it to drill for.

I'm getting the sense that this observation is far from groundbreaking and might already be obvious to people who think about RE investing more than I do.

GuitarStv

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Re: Could all the buzz about house hacking really be...
« Reply #5 on: October 26, 2020, 11:05:05 AM »
The 1% rule flat out doesn't work in any large city I've looked at.  There may be a few out there, but they're the exception.  People are living in cities more than ever before, so it makes sense they're trying to figure out a different way to make things possible.

Malcat

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Re: Could all the buzz about house hacking really be...
« Reply #6 on: October 26, 2020, 11:18:54 AM »
I'm kind of confused about what you are asking.

Are you asking if people are house hacking because real estate is too expensive? Well, yeah.

Or are you asking for tips on house hacking because housing is too expensive???

I'm kind of confused.

I was just thinking out loud about the how the house hacking concept has become so prominent. I mean, it's even the subject of the most recent MMM article.

It just seems like not as many people would be interested in this if it were easy to buy a single family home in a decent neighborhood and rent it out at a profit the old fashioned way. Kind of like how we wouldn't have to squeeze oil out of the Athabasca tar sands if there was still plenty of it to drill for.

I'm getting the sense that this observation is far from groundbreaking and might already be obvious to people who think about RE investing more than I do.

Lol, okay, I get it.

Yes, some people will come to house hacking naturally, but the vast majority will do it in response to the cost of housing.

It takes extra work and extra risk, so I doubt many would do it if there weren't a significant pressure to do so. I mean, even as it is, very few people do. I don't think it's as prominent as you think it is, but it sure is talked about a lot because it makes great copy.

Healthie

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Re: Could all the buzz about house hacking really be...
« Reply #7 on: October 26, 2020, 11:49:43 PM »
I've talked to several people about this (Canadian here) and It sounds like a 'that would be great' kind of idea but doesn't seem reality-based, unless you buy an old rental that needs some minor updates (paint, light fixtures, flooring) for a good price in a 'not the worst part of town' kind of neighborhood. On my house for example I could probably only get 0.75%.

bbqbonelesswing

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Re: Could all the buzz about house hacking really be...
« Reply #8 on: October 27, 2020, 06:54:28 AM »
I don't think "house hacking" is the ONLY way to get into real estate. It's just a catchy term and so gets a blog post. People have been taking on boarders for, I dunno, probably thousands of years.

As for where the broad market is... if if were easy to buy an investment property and make a tidy sum every time, everyone would do it. Then the returns would fall as that strategy became more crowded. Then, people would find something else with a higher return. Fast forward a few years, and real estate is less crowded and it's easy to make a decent return again. Repeat ad infinitum.

Like other asset classes, real estate moves in cycles. It isn't always the best choice. There is no universal rule saying that rentals have to be a good choice in every city, all the time. Maybe the location is wrong, maybe the timing is wrong, maybe the financing is wrong. Move on, adapt, or wait it out. I mention this because I've seen a few posts lately about rental math not working out. Well, sometimes it just doesn't. That's how it's supposed to work.

https://ofdollarsanddata.com/the-red-queen-of-investing/

Malcat

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Re: Could all the buzz about house hacking really be...
« Reply #9 on: October 27, 2020, 07:04:59 AM »
Also, curious.

Are you talking about buying investment properties or buying a primary home?

Most of the people I know who house-hack do so in order to afford their own home.

SndcxxJ

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Re: Could all the buzz about house hacking really be...
« Reply #10 on: October 27, 2020, 10:10:44 PM »
House hacking works for beginners to the real estate market.  It is way to ease into property management, while at the same time reducing your personal housing costs, and simultaneously collecting the best financing options.
Everyone is talking about house hacking because most people are real estate noobs, and house hacking is for beginners.
I don't house hack (anymore), I have a somewhat sophisticated process of matching good real estate and investors with large amounts of capital, while running a construction crew and personal property management company in a HCOL area, and put myself in the middle of everything to reap the most I can muster.
This process isn't really repeatable by people en mass, but house hacking is.  House hacking is efficient, house hacking is doable. 
There is a ton of money in real estate, in many ways, but real estate investing (in many markets) is highly efficient, with lots of people bringing a lot of skill and cash to the table.  If a person isn't a real estate professional, but want to get their foot in the door, house hacking is one of the more efficient ways to go.

ericrugiero

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Re: Could all the buzz about house hacking really be...
« Reply #11 on: October 28, 2020, 07:45:03 AM »
...due to the fact that nobody can buy "normal" profitable real estate properties anymore?

Seriously, where are the markets where a 30 or 40-something with a family can currently buy an investment property that meets the 1% rule?

It doesn't seem like you can find 1% rule properties in the big cities with hot housing markets.  You can find them in some of the smaller towns in the Midwest and Southeast. 

Proud Foot

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Re: Could all the buzz about house hacking really be...
« Reply #12 on: October 30, 2020, 12:11:46 PM »
Investment part aside, because I think others have covered that well, if you want to own a house this is a good way to go. It has been shown that millenials/gen Z are waiting longer to get married than previous generations. If you are coming out of college and get a good paying job, are not married, and want to build wealth then it may* make sense to purchase a house and rent out rooms.

*this obviously depends on the market. 

therethere

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Re: Could all the buzz about house hacking really be...
« Reply #13 on: October 30, 2020, 12:20:26 PM »
In my hot market if you want a duplex, you're paying 2x the price of a normal SFH. But only getting half the lot size and smaller units. So it doesn't make sense. It's so far out of whack. I wish I had the capital 6-8 years ago to jump in the game.

AccidentialMustache

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Re: Could all the buzz about house hacking really be...
« Reply #14 on: October 30, 2020, 04:01:52 PM »
We picked up two duplexes just as the covid crazyness started earlier this year at about 1.33%. It was a "you had to be ready to move" because the seller was doing a 1031 exchange, and we were. We didn't lowball, we met asking price, because honestly most I see around here are a lot closer to 1%.

There's certainly plenty of 0.5%-0.75% stinkers on the market. Of course, they're *still* on the market, months later.

We are not and never have been a hot market. Neither are we nor have we been a cold market. We're a midwestern, large university town. Sprawl is cheap, so things can't get expensive, and the university keeps the local economy alive compared to neighboring cities that were reliant on railways/maunfacturing/etc.

Buffaloski Boris

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Re: Could all the buzz about house hacking really be...
« Reply #15 on: November 01, 2020, 10:07:35 AM »
I don't think "house hacking" is the ONLY way to get into real estate. It's just a catchy term and so gets a blog post. People have been taking on boarders for, I dunno, probably thousands of years.

As for where the broad market is... if if were easy to buy an investment property and make a tidy sum every time, everyone would do it. Then the returns would fall as that strategy became more crowded. Then, people would find something else with a higher return. Fast forward a few years, and real estate is less crowded and it's easy to make a decent return again. Repeat ad infinitum.

Like other asset classes, real estate moves in cycles. It isn't always the best choice. There is no universal rule saying that rentals have to be a good choice in every city, all the time. Maybe the location is wrong, maybe the timing is wrong, maybe the financing is wrong. Move on, adapt, or wait it out. I mention this because I've seen a few posts lately about rental math not working out. Well, sometimes it just doesn't. That's how it's supposed to work.

https://ofdollarsanddata.com/the-red-queen-of-investing/

Thanks for the link. Well worth the read

maizefolk

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Re: Could all the buzz about house hacking really be...
« Reply #16 on: November 01, 2020, 10:37:18 AM »
We are not and never have been a hot market. Neither are we nor have we been a cold market. We're a midwestern, large university town. Sprawl is cheap, so things can't get expensive, and the university keeps the local economy alive compared to neighboring cities that were reliant on railways/maunfacturing/etc.

Is that continuing to be the case in your town?

Until this past spring I always felt bad about not getting into real estate (not an investment approach suited to my personal temperament) because I lived in a university town and I remembered all the stories about how university towns came through the 2007/8/9 crash almost untouched while most other parts of the country saw big declines in housing values.

Now with debates about how much of the university will remaining online for how long, the continuing looming of layoffs and/or budget cuts, plus what the mostly absence of college football and the big crowds it brings in non pandemic years is doing to a lot of local businesses I'm not as confident college town real estate is as safe as I'd previously thought.

Anyway, I ask only out of academic interest. Hope your properties are doing well.

ender

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Re: Could all the buzz about house hacking really be...
« Reply #17 on: November 01, 2020, 11:18:17 AM »
...due to the fact that nobody can buy "normal" profitable real estate properties anymore?

Seriously, where are the markets where a 30 or 40-something with a family can currently buy an investment property that meets the 1% rule?

It doesn't seem like you can find 1% rule properties in the big cities with hot housing markets.  You can find them in some of the smaller towns in the Midwest and Southeast.

+1


Dicey

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Re: Could all the buzz about house hacking really be...
« Reply #18 on: November 01, 2020, 12:43:14 PM »
We finished and sold our last flip over a year ago. We haven't found a house to BRR in five years. We have boatloads of cash and would like to get another project rolling before DH pulls the plug on his job next year, but nothing pencils out. Happily, the money isn't burning a hole in our pockets, so we'll just wait and see what happens. In the meantime, we're considering re-fis on all of our rentals. Maybe then they'll hit the 1% rule a little more dependably. As it is, if expenses are high or we have tenant turnover, sometimes we don't quite hit the goal. Not really a worry, because we're already FI and FIRE and we only buy properties we'd be happy to live in.

As it is, we could sell our primary home, pay off all three rentals*, live in one of them and continue to rent out the other two. We could easily live on that income, plus we'd have a cool million to add to our stache. Therefore, we don't really care about the 1% rule.

*Don't worry, my DPOYM friends, this is just a brain exercise.

SwordGuy

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Re: Could all the buzz about house hacking really be...
« Reply #19 on: November 01, 2020, 01:15:07 PM »
...due to the fact that nobody can buy "normal" profitable real estate properties anymore?

Seriously, where are the markets where a 30 or 40-something with a family can currently buy an investment property that meets the 1% rule? It seems like being an unattached 20-something who can buy a cheap house and rent out the other bedroom is pretty much the ONLY way to get into real estate investing these days and actually be successful. Am I wrong?

I remember reading an article a few years back on how a 20-something with a starter job (who had to share a 2 bedroom apt with a roommate) house-hacked the apartment for AirBnB type renters.    She rented out her roommate's room 1 wk/ month when her roommate was travelling and rented out her own bedroom (and slept on a friend's couch).   She's got gobs of properties now.    That willingness to be inconvenienced for a year or two was sufficient to jump-start her fortune.

So don't knock being a 20-something without lots of money.  :)

We had a major recession in 2008 under the Bush administration.    It took a year or so before things started to turn around and we've been in a bull market for a very long time afterwards.    Lots of people making money, "good times", etc.    You don't find gobs of great real estate deals when you're in long-running boom times.    Why?   Because lots of people want to buy and they feel flush, so they'll pay more.   Fewer folks are in dire straits so there are fewer sales where folks have to sell for whatever they can get.

So, OF COURSE there haven't been gobs of real estate deals out there.   

If we sink into a long recession and more people start losing their jobs, then months later the better deals will show up.   

If you're ready to move when the RE market is in the right spot and can get in early on it, you can do very, very well.   

But some markets are driven by a short supply of housing stock and a plethora of highly paid jobs, which means you'll always find it hard to find great deals there while that's true. 



AccidentialMustache

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Re: Could all the buzz about house hacking really be...
« Reply #20 on: November 01, 2020, 09:42:14 PM »
We are not and never have been a hot market. Neither are we nor have we been a cold market. We're a midwestern, large university town. Sprawl is cheap, so things can't get expensive, and the university keeps the local economy alive compared to neighboring cities that were reliant on railways/maunfacturing/etc.

Is that continuing to be the case in your town?

Until this past spring I always felt bad about not getting into real estate (not an investment approach suited to my personal temperament) because I lived in a university town and I remembered all the stories about how university towns came through the 2007/8/9 crash almost untouched while most other parts of the country saw big declines in housing values.

Now with debates about how much of the university will remaining online for how long, the continuing looming of layoffs and/or budget cuts, plus what the mostly absence of college football and the big crowds it brings in non pandemic years is doing to a lot of local businesses I'm not as confident college town real estate is as safe as I'd previously thought.

Anyway, I ask only out of academic interest. Hope your properties are doing well.

We're fully rented at the moment, with two new leases in Aug/Sept. One was empty a month or so, the other was the standard 1 week turnover. There's another lease up at year-end, so tbd there. Our property manager doesn't anticipate problems renting it.

Nothing I've seen suggests a price crash on rentals. The real estate agent we work with hasn't been bombarding us with lots of rental fire sales, suggesting most local landlords plan to ride it out and are doing so successfully. There's still plenty of new luxury student apartment construction going on.

The "death of higher ed" is probably overblown. I'm pretty sure they set an enrollment record this fall. Some of that is online programs of course, but it isn't like the student population vanished.

Also, there's a mitigating factor of remote work being the norm. While the midwest doesn't have the mountains or ocean, we also don't have hurricanes or earthquakes*. There's a lot of Gen X/Milennials who might want to move back to the midwest to be closer to family/afford a house/raise a family which I think you'll see as a cross-wind against the "death of higher ed" current.

*: New Madrid excepted, of course

cosine88

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Re: Could all the buzz about house hacking really be...
« Reply #21 on: November 15, 2020, 10:43:07 AM »
I don't disagree.

But if you want to make money you should sell your house and rent. If you own a house of course (Note: I don't do this either).  There are fantastic deals out there for renters compared to owning. The property owners seam to be willing to heavily subsidized rents. This is especially true in hot markets.

Makes me think that all the monkey business done be the feds and fed is having the desired effect of increasing RE/Asset prices but not pushing up rents which would hurt middle/lower income class folks. So I guess there are worse outcomes?

Yes you can't really buy a decent income property these days unless you find a unicorn of course.

I am currently going through a refi that will drop my rate to 2.375%. 30-year fixed, mortgage is $475k or so.
My current rate is 3.625% and was originally 4.125%. This will drop my payment $350/month. Interest will actually drop more, and principal portion goes up $100.
The total payment is down $600 from when I bought in 2017, and the principal is up $200.

That's an $800/month reduction in interest payments. I'm house hacking, and I've actually raised rents over that time period. I live in a HCOL area, with a big unversity so there's always college students, grad students, yuppies to fill the rooms, and demand only goes up during economic turmoil since people go back to school.

I can't imagine a scenario renting where the changes over time are that good.

Bloop Bloop Reloaded

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Re: Could all the buzz about house hacking really be...
« Reply #22 on: November 16, 2020, 10:21:49 PM »
Covid is screwing with real estate investment. Everything that's happened is benefiting tenants to the detriment on landlords. In my jurisdiction you can't evict tenants for non-payment of rent, you can't even ask a tenant to move out at the end of a **fixed term lease** if the tenant doesn't want to, and in addition the government's just mandated higher standards for air conditioning. Normally I'd have no issues with government regulations because better air con = higher rent to be charged, but I forgot to mention we're also not allowed to hike rents. At all.

It's like my state government has used the Covid thing as an excuse to put in all these measures - even though, as of now, we've gone 2 weeks without a single new case of covid in the whole state, and the economy is going to recover relatively quickly.