5 Reasons Why You Should NOT House hack Your First Deal

House hacking is a great way to get into real estate investing, but it's not for everyone. In this video I share five reasons why you should skip a house hack if it is your first deal and go for Live-Then-Rent strategy.

Transcription

Ariel Herrera 0:00

One of the main topics that I keep hearing around the real estate space is house hacking. A lot of real estate investors are saying today that house hacking is the best strategy to get started. In the real estate space for newbies. I'm going to tell you that this is wrong. There are five reasons that I'm going to be sharing in this video why you should not house hack your first deal. My name is Ariel Herrera with the analytics aerial channel where we bridge the gap between real estate and technology. I love being data driven, and also being able to share my investor experiences. If you liked this type of content, then please subscribe. So you get the latest of it as well like this video, so I know to make more of it. Alright, let's get started. So what is house hacking house hacking is basically a strategy that allows you to purchase a property, and then significantly pay less in your mortgage, because you're also renting out to tenants that are within the same household. So for one, it could be a single family home where you're renting out bedrooms, it could be that you're renting out a basement, or it could be that you have a multifamily property, so maybe a two unit three unit or four unit, and you're the landlord living in one of the units and you're renting out the others. Now, I do want to say this is a tremendous strategy to be able to scale and to be able to acquire a lot of properties and also have a very low cost. However, I do not think it is the best strategy for your first ever real estate investment property. And I'm going to explain why and five reasons. Reason number one, it acquires a lot of capital to be able to start as a house hack. So say if you're looking to go from a two or four unit building, you're going to need more capital down. In order to purchase that property. Yes, you can go the FHA route, and put as little as 3.5% down. But remember, you need to make this rent ready. So if you're trying to make a rent ready large property, that could end up costing you a lot of money, as well in a city like Jersey City where I wanted to eventually get a property back in the day when I was working in New York. Now if I wanted a multifamily property that was going to put me around $800,000. And even at 3.5% down, if I could even get a loan for that amount, it would still be acquiring to put a lot of money. Whereas getting a single family property, I could do as little as 3.5% down on a property that was about $250,000. So it made a lot more sense to go a single family route, then going the two to four unit route within the New Jersey area. Reason number two, privacy privacy privacy. Okay, privacy is not underrated, I do not want my tenants to see me on a day to day basis. Now my first property that I got, I was 25 years old. And even though I am a programmer and a nerd at heart, I do like being able to go out on the weekends. I like the flexibility of coming home at two in the morning and maybe sounding a little bit not like myself on the weekdays. And you cannot do that if you are a landlord and you have tenants that live right next to you, you're going to look very irresponsible. And you're going to always have in the back of your mind what your actions are and how that reflects on a tenant. Now I want to be able to have people at all hours of the day if I like and not always be conscious of where my visitors are parking, and then how that's going to affect by tenants parking as well. So that whole privacy part is really what did me away with wanting to do house hacking for my first property. Reason number three, convincing a significant other. Now, if you're someone who wants to do house hacking, you're single, you're in your 20s. I mean, there's nothing better than that you

read a book mostly, it's perfect. But in my case, I was moving out for the first time with my boyfriend and convincing him for our first move out let's be tenants. Sorry, let's be landlords and have tenants was a complete nono. In that case, he was like, alright, let's just go rent somewhere, and one of these apartment complexes. So it's really difficult sometimes to be able to convince a significant other to do house hacking. But what I did was that I purchased a single family home that had two bedrooms. So even though we technically only needed a one bedroom, the second bedroom in the back of my head, I was thinking, well, maybe we could house hack this room in the future. After a period of time, which we did after living in the property for nine months. My significant other felt a lot more comfortable. He felt like he was had sole ownership in the home and having someone in place would actually be a benefit because the monthly rent would be a lot less reason number or there are limited real estate investment tools to analyze house hacking deals. So if you're looking to buy a duplex triplex and quad Plex, it can be extremely intimidating as someone who's a newbie to not only figure out how to analyze an investment property, but now you have to figure out how to analyze an investment property, that's a two unit, it just adds a whole layer of complexity. And for someone who's starting out, it may be a reason to just back out entirely. Reason number five is analysis paralysis, it's already difficult enough to purchase your first property and make the leap. Now if you're going the house hacking strategy, there are so many other variables to account for. If you're looking to transform a single family property to add an adu, perhaps, or run out of basement. Now you have in the back of your mind that you need a property that you can maybe add a bathroom to in the bottom, you could have plumbing, you're going to need an extra space at parking, there's so many more factors that it can inhibit you to even get started. And the number one thing in real estate is to get started. We don't want to sit on the sidelines. Maximum is 12 months of self study the afterwards if you have the capital, it's time to get moving. Those are my five reasons why I don't believe house hacking is the best strategy for your first deal. Yes, I do believe that house hacking is tremendous. And it should be a strategy that you use in your future deals. However, if you're timid ated to getting started, and you feel a little bit overwhelmed have so much knowledge that's out there, which is completely normal, then take the most simplest route, get a single family property, live in it for a year, rents it out, do it all over again and get turnkey property so that you're and also not worried about the headache of doing a fix and flip. This is a great way to start and what I call the LTR live then rent strategy. It works perfectly for professionals who are really focused on getting their career going in a high trajectory, and all they want to do is build wealth passively. If you want more information on the LTR strategy, then please check out some of my previous videos as well. Thanks so much and don't forget to subscribe