Weekly Update #2

I engaged more actively with the BiggerPockets forums this week and connected with some real estate agents and fellow investors in the Portland. One of the folks that I spoke with was Mathew Wray—a real estate agent with Keller Williams in the Portland area. We arranged a call which ended up being extremely insightful for me. Mathew asked me about my goals, both short term and long term, and got a better picture of my financial situation. Then we discussed potential investment opportunities in the Portland area and whether it would be worth it for me to buy a home here this summer. Mathew made some excellent points given my current budget and we came to the conclusion that ultimately, it is probably not the best opportunity for me this year.

Know your ideal tenant. Mathew helped me realize that when targeting an investment property, you must not only think of location and quality of property but, even more importantly, who it is that you want to rent to. This is something that Bryan Chavis discusses heavily in his book The Landlord Entrepreneur as well. In my case, I would be looking for hands-off tenants. Mathew gave the example that a target tenant for me could be an intel worker or OHSU student who works 14 hours a day and only needs a place to eat and sleep. If I want those tenants, then I would be looking to invest in the Beaverton or Milwaukee areas or in west Portland by the West Hills. The reality is, I am priced out of those areas. At 5% down, my budget is about $600,000 considering the money that I want set aside for closing costs, repairs, and liquidity. For duplexes and triplexes, that situates my area of investment solidly in east Portland. In far east Portland, past the 90s and 100s, I am far more likely to end up with hands-on tenants, greater turnover, and a greater time commitment.  

Mathew pointed out that there are still theoretical positive outcomes. There is always the chance that I buy a property in Portland this summer, the housing market continues to appreciate at an insane rate, and I sell the property next summer for a profit and put that money towards my first long-term property in a new city. The reality is unfortunately that this is unlikely to be the case. Even with favorable appreciation, I stand to make money for a lot of other people before I make money for myself. Considering that I would stand to pay closing costs upon purchasing a property, initial capital expenditures, potentially negative cashflow at times when I reside there, private mortgage insurance and mortgage interest payments, and finally the real estate agent’s (potentially Mathew’s) commission upon sale, I am the last person to make money in such a situation. The potential for loss and headache is much greater than the possibility of a meaningful profit. As Mathew put it, “As your agent, I would sure make money both ways on this investment. I can’t say that you would.”

So what would be the point of a property this summer then? Well I wouldn’t have to pay for housing. At the end of the day, Mathew and I agreed that this wasn’t a worthy reason for a house hack. I can certainly afford to pay for housing this summer and, as cheap as I am and how little I like the idea of renting, the freedom of renting housing will actually be a worthy investment. An unfortunate compromise now will bear fruit in the form of a pressure-free situation for me to allocate my capital after graduation. At the end of the day,  we both agreed that as far as we could tell, next summer will be a far better time for me to buy my first investment property. When I am settled in a city with fixed employment for a reasonable period of time, I will have far greater flexibility and options.