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Short Summary
Main recommendation: Buy your first rental through house hacking, living in one unit of a 2 to 4 unit property using an FHA loan with as little as 3.5% down, and target one of five markets where the total cash needed is about $15,000 or less. The five markets named are Oklahoma City, Rochester, Memphis, Little Rock, and Wichita. The speaker's analysis focuses on price appreciation, rent growth, and population growth over recent years.
Key Points
- The promised list of 5 markets, in no particular order: (1) Oklahoma City, Oklahoma; (2) Rochester, New York; (3) Memphis, Tennessee; (4) Little Rock, Arkansas; (5) Wichita, Kansas.
- House hacking requires owner-occupancy, which unlocks owner-occupant financing such as FHA loans that allow 3.5% down on properties of up to four units.
- Oklahoma City has the strongest population growth on the list (12% from 2010 to 2019), with about 8% average home price growth over three years and about 3.5% rent growth since 2018.
- Memphis has the lowest entry point (median home price around $141,000, about $11,800 needed) and the strongest rent growth on the list (average 7.5% over three years), though its population has stayed roughly flat.
- The speaker recommends judging markets by a three-year compound annual growth rate instead of the last year's spike, which he considers an unhealthy housing market.
Details Worth Noting
- Concrete instructions:
- Decide whether you will live in the property, since house hacking only works as an owner-occupant.
- Choose a property of one to four units and plan to live in one unit while renting the rest (or rent out two spare bedrooms in a single-family home).
- Budget for the down payment (3.5% under FHA), closing costs (the speaker assumes 3% of the loan amount, though 3 to 5% is typical and can be lowered with credits and discounts), and cash reserves (the speaker assumes 2% at purchase, building toward 5% over time from cash flow).
- Check the market using a three-year compound annual growth rate for price appreciation, plus rent growth and population growth.
- Estimated cash needed by market: Oklahoma City about $14,000; Rochester about $13,500; Memphis about $11,800; Little Rock about $15,010; Wichita about $14,900.
- Rochester's population has shrunk about 2.4% since 2010, while its rent rose about 5.3% on average over three years and 11% over the last year; the speaker also joked about Rochester's 'garbage plates.'
- Little Rock has grown about 2% in population over the last decade, with about 4.3% average rent growth and about 8.8% home price appreciation since 2018.
- Wichita has the highest home price growth on the list at about 8.9%, with about 3.5% rent growth and 2% population growth.
- The speaker notes his analysis looks at averages and trends, and viewers must do their own analysis based on their finances and goals.
Bottom Line
House hacking with an FHA loan is the main path the speaker presents for starting with about $15,000, and the five named markets are where he sees the strongest combination of affordability and growth, though each comes with tradeoffs such as Memphis's flat population or Little Rock's higher price.
