House-Hacking Is Dead
This is the new reality
Welcome to this week’s issue The Un-Normal Investor. Each week, I publish one 5-minute read that’s written to make you a smarter real estate investor.
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I hate to be the bearer of bad news . . .
But your ‘house-hacking’ master plan is not a simple as TikTok makes it seem.
Once Upon A Time
Once upon a time—not so long ago—a good credit score and a decent job would get you a 2.85% interest rate on a 30-year fixed mortgage.
With debt service this low, you could buy a $300K duplex with a 5% downpayment; rent out one side and basically live for free.
Here’s the math: Purchase Price = $300,000 Downpayment = $15,000 Mortgage (2.85%) = $1,550 Rent From One Side = $1,600
Now Days
But this is no longer the reality that we live in.
Interest rates have more than doubled, and configuring deals that pencil has become a nearly impossible.
If you were to buy that same duplex today, here’s how the numbers would look:
Purchase Price = $300,000 Downpayment = $15,000 Mortgage (6.85%) = $2,220 Rent From One Side = $1,600
You’d still have to come up with roughly $600 at the end of each month.
Sure, it’s less than the rent you’d pay to live elsewhere.
But nevertheless, it’s not quite as good of a deal as you would have gotten a few years ago.
The Silver Lining
So what’s the silver lining (you may be asking now that I’ve stated the obvious)?
I’ll tell you.
There’s far less competition in the market.
When interest rates were low, everyone was a buyer or investor.
It wasn’t uncommon for listings to receive 20+ offers and sell for hundreds of thousands above ask - especially here in the Bay Area and other major metros.
Getting into contract with an FHA Loan or without waving all contingencies was extremely tough.
Fast-forward to today, the market has gone from red hot to ice cold.
Albeit home prices haven’t dipped much, the crowds have left the open houses.
Values have stabilized and the real estate terrain has returned to a sense of normalcy.
You no longer have to sell your soul in order to get a deal done.
How To Make the Most of Today’s Market
So for those that sat on the sidelines from 2019 - ‘21, and have stockpiled a small cache of paper gold (aka capital), now is your time to get in the game.
For both buyers and investors, the pendulum has swung in our favor.
In my personal (and professional) opinion there’s never been a better time to buy great properties at a fair price.
If you’re someone who shares the same sentiment, send me a message.
Would love to discuss some of the markets we’re keen on, and the strategies were implementing to keep cash-flow alive in a high interest rate environment.
What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?
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