Tips for First REI/House Hack Deal

[Austin Powell]

Hello,

I am beginning the hunt for my first property. I've had my ear against the door of REI for a few years now and I'm finally ready (within the next 12 months or so) to dive in. The main goal is of course to omit my personal housing cost each month as I will be returning to college. Its just my dog and I so more than willing to sacrifice the majority of the property to the renters to maximize income. I am extremely handy with a vast collection of tools so can perform improvements myself. Ideally it would be mostly cosmetic and nothing serious as my free time is fairly limited with work/school. That being said, if it makes the deal make sense I'm definitely willing to take this on. Here are the questions I currently have -

1.) Is it best to find a property that is already divided or has a separate unit? Or a small multi family?

2.) What're some major issues people have seen with this process? Permitting, zoning, finance, etc.

3.) Are there any financing options that are favorable to this process and include construction costs?

4.) If going the conversion route, what are some property features to look for?

Location - Jacksonville, FL (unfortunately, no basements!)

Thanks in advance for any advice/tips!

[Jake Andronico]

Quote from @Austin Powell:

Hello,

I am beginning the hunt for my first property. I've had my ear against the door of REI for a few years now and I'm finally ready (within the next 12 months or so) to dive in. The main goal is of course to omit my personal housing cost each month as I will be returning to college. Its just my dog and I so more than willing to sacrifice the majority of the property to the renters to maximize income. I am extremely handy with a vast collection of tools so can perform improvements myself. Ideally it would be mostly cosmetic and nothing serious as my free time is fairly limited with work/school. That being said, if it makes the deal make sense I'm definitely willing to take this on. Here are the questions I currently have -

1.) Is it best to find a property that is already divided or has a separate unit? Or a small multi family?

2.) What're some major issues people have seen with this process? Permitting, zoning, finance, etc.

3.) Are there any financing options that are favorable to this process and include construction costs?

4.) If going the conversion route, what are some property features to look for?

Location - Jacksonville, FL (unfortunately, no basements!)

Thanks in advance for any advice/tips!

Congrats man! I've house hacked twice in Reno, NV and it's changed my life. I was able to do it near a University (which it sounds like that's likely where you're moving to), and renting by the room can be a powerful strategy that not many are willing to do. 

1) "Best" is subjective. If you're willing to live with roommates it'll likely be much easier to find options. 4-5 beds is usually ideal for offsetting the mortgage. 

2) Know your local zoning codes and go down to the planning department if you can. At least here in Reno, they're super helpful. 

3) You're probably going to hear a lot about FHA 203K loans - I have not seen anyone do one successfully (again can be very area specific). My understanding is finding contractors is the most difficult part. Saving up more money isn't the most fun suggestion but it is what I'd suggest. Just my opinion. 

4) Totally depends on zoning. You can do unpermitted work, but when you go to sell it'll be unpermitted work. This may not matter to a buyer, but I've seen it impact values immensely in the wrong direction, even when it was producing significant income. If you're able to talk to the planning department and bring an actual address, that's a great place to start to explore the idea. 

Best of luck to you!!

[Mitchell Morgan]

Hey Austin!

I'm also currently looking for a value-add house hack in Jacksonville. You mentioned school so I assume you're looking in the area near UNF? Send me a dm if you're interested in connecting, I'm always up to meet and talk with other investors.

These are my thoughts:

1.) My initial plan was to look for a small MFH (duplex, triplex) or a SFH with a large detached garage that could be converted to an ADU.

2.) But after speaking with others I'm starting to think that the ADU conversion may be more trouble than it's worth. On paper the idea seems perfect, but here are some potential issues.

-The newly converted ADU may not be able to be permitted (or a permit won't be approved before the rehab starts).

-Unless the garage already has electric and water connections, that's an important and expensive item in the SOW. Similarly, it's almost guaranteed not to have a sewer connection which would need to be added as well. 

-Those utilities will be connected to the main residence unless you get new separate meters permitted and added.

-Depending on the property and ADU, after you move out it may be difficult to rent the two units separately. One example, if the main residence is a 4/2 then your tenant avatar is going to be a family. A family with young children is unlikely to be comfortable having a stranger living in their backyard.

3.) Agents and lenders I've spoken with have mentioned the possibility of a 203K loan, but my understanding is that they are a huge PITA and slow. 

My plan, depending on the condition of the property, will be either a conventional 5% down loan or a fix-and-flip loan. In both scenarios, I will use the equity in my first rental via HELOC to either cover the conventional loan's down payment and fund the rehab or to fund the hard money down payment and meet the reserve capital requirements. Then refinance afterward.

4.) I really think permitting will control the possibilities for ADU conversions. But I could definitely see myself living in a 400sf converted detached garage for a year.

But again those are just my thoughts and any advice from experienced investors will likely help us both to figure things out. Hopefully, someone who has gone through the ADU conversion and permitting process will see this post and share their experience.

[Anthony Swain]

Hey @Austin Powell,

Happy Hunting! It sounds like you've taken steps toward education, but now it is time to take action.  Education x Action = Results

You got this!

1) It sounds like in you're situation that a SFH renting by the room can maximize your situation since you may be willing to share the space. As @Jake Andronico mentioned, more bedrooms can lead to more income for the property, but potentially more conflicting personalities haha. I think screening will be your best friend if you go this route to prevent the most headaches. 

2) I'd say the biggest problem renting by room is potentially laws about unrelated persons living in same household. Double check that before purchasing a property. 

3) FHA 203k loans would obviously be ideal in a vacuum to factor in renovation costs into loan to decrease your out of pocket expenses. Unfortunately, there are several barriers, including finding a seller willing to accept this loan, a lot of lender red tape, and then coordinating a qualified/licensed contractor to do all the work. It isn't impossible, but not easy either.

I'd recommend a first time home buyer loan while looking into any down payment grants you may be eligible for in that area. Speak to multiple lenders and see who can give you the most favorable terms and loan product. You can find loans anywhere between 0-5% down depending on your individual circumstances. 

4) I am unfamiliar with jacksonville laws and regulations, but in general, a property with unused space is ideal for these conversions. For example, a garage, a large lot, a covered patio on foundation, etc. 

Good luck Austin! Keep us posted!

-Ant

[Austin Powell]

Quote from @Mitchell Morgan:

Hey Austin!

I'm also currently looking for a value-add house hack in Jacksonville. You mentioned school so I assume you're looking in the area near UNF? Send me a dm if you're interested in connecting, I'm always up to meet and talk with other investors.

These are my thoughts:

1.) My initial plan was to look for a small MFH (duplex, triplex) or a SFH with a large detached garage that could be converted to an ADU.

2.) But after speaking with others I'm starting to think that the ADU conversion may be more trouble than it's worth. On paper the idea seems perfect, but here are some potential issues.

-The newly converted ADU may not be able to be permitted (or a permit won't be approved before the rehab starts).

-Unless the garage already has electric and water connections, that's an important and expensive item in the SOW. Similarly, it's almost guaranteed not to have a sewer connection which would need to be added as well. 

-Those utilities will be connected to the main residence unless you get new separate meters permitted and added.

-Depending on the property and ADU, after you move out it may be difficult to rent the two units separately. One example, if the main residence is a 4/2 then your tenant avatar is going to be a family. A family with young children is unlikely to be comfortable having a stranger living in their backyard.

3.) Agents and lenders I've spoken with have mentioned the possibility of a 203K loan, but my understanding is that they are a huge PITA and slow. 

My plan, depending on the condition of the property, will be either a conventional 5% down loan or a fix-and-flip loan. In both scenarios, I will use the equity in my first rental via HELOC to either cover the conventional loan's down payment and fund the rehab or to fund the hard money down payment and meet the reserve capital requirements. Then refinance afterward.

4.) I really think permitting will control the possibilities for ADU conversions. But I could definitely see myself living in a 400sf converted detached garage for a year.

But again those are just my thoughts and any advice from experienced investors will likely help us both to figure things out. Hopefully, someone who has gone through the ADU conversion and permitting process will see this post and share their experience.

Thanks for the insightful response! Good points to consider on the ADU. Definitely down to connect anytime.

[Austin Powell]

Quote from @Anthony Swain:

Hey @Austin Powell,

Happy Hunting! It sounds like you've taken steps toward education, but now it is time to take action.  Education x Action = Results

You got this!

1) It sounds like in you're situation that a SFH renting by the room can maximize your situation since you may be willing to share the space. As @Jake Andronico mentioned, more bedrooms can lead to more income for the property, but potentially more conflicting personalities haha. I think screening will be your best friend if you go this route to prevent the most headaches. 

2) I'd say the biggest problem renting by room is potentially laws about unrelated persons living in same household. Double check that before purchasing a property. 

3) FHA 203k loans would obviously be ideal in a vacuum to factor in renovation costs into loan to decrease your out of pocket expenses. Unfortunately, there are several barriers, including finding a seller willing to accept this loan, a lot of lender red tape, and then coordinating a qualified/licensed contractor to do all the work. It isn't impossible, but not easy either.

I'd recommend a first time home buyer loan while looking into any down payment grants you may be eligible for in that area. Speak to multiple lenders and see who can give you the most favorable terms and loan product. You can find loans anywhere between 0-5% down depending on your individual circumstances. 

4) I am unfamiliar with jacksonville laws and regulations, but in general, a property with unused space is ideal for these conversions. For example, a garage, a large lot, a covered patio on foundation, etc. 

Good luck Austin! Keep us posted!

-Ant

 Thanks for the info. The financing side seems more daunting than finding the actual property!

[Austin Powell]

Quote from @Jake Andronico:

Quote from @Austin Powell:

Hello,

I am beginning the hunt for my first property. I've had my ear against the door of REI for a few years now and I'm finally ready (within the next 12 months or so) to dive in. The main goal is of course to omit my personal housing cost each month as I will be returning to college. Its just my dog and I so more than willing to sacrifice the majority of the property to the renters to maximize income. I am extremely handy with a vast collection of tools so can perform improvements myself. Ideally it would be mostly cosmetic and nothing serious as my free time is fairly limited with work/school. That being said, if it makes the deal make sense I'm definitely willing to take this on. Here are the questions I currently have -

1.) Is it best to find a property that is already divided or has a separate unit? Or a small multi family?

2.) What're some major issues people have seen with this process? Permitting, zoning, finance, etc.

3.) Are there any financing options that are favorable to this process and include construction costs?

4.) If going the conversion route, what are some property features to look for?

Location - Jacksonville, FL (unfortunately, no basements!)

Thanks in advance for any advice/tips!

Congrats man! I've house hacked twice in Reno, NV and it's changed my life. I was able to do it near a University (which it sounds like that's likely where you're moving to), and renting by the room can be a powerful strategy that not many are willing to do. 

1) "Best" is subjective. If you're willing to live with roommates it'll likely be much easier to find options. 4-5 beds is usually ideal for offsetting the mortgage. 

2) Know your local zoning codes and go down to the planning department if you can. At least here in Reno, they're super helpful. 

3) You're probably going to hear a lot about FHA 203K loans - I have not seen anyone do one successfully (again can be very area specific). My understanding is finding contractors is the most difficult part. Saving up more money isn't the most fun suggestion but it is what I'd suggest. Just my opinion. 

4) Totally depends on zoning. You can do unpermitted work, but when you go to sell it'll be unpermitted work. This may not matter to a buyer, but I've seen it impact values immensely in the wrong direction, even when it was producing significant income. If you're able to talk to the planning department and bring an actual address, that's a great place to start to explore the idea. 

Best of luck to you!!

 Thanks Jake. Did you also rent by the room? If so, how did you mitigate all the potential issues that come with have so many different people under one roof?

[Rick Albert]

Hey Austin,

These are great questions. Here are my thoughts:

1. It is all about the numbers. For some, it makes sense to rent by the room, others it could be units. Arguably you can structure a single family house like a multifamily, with each room being like a separate unit. Other than that, I have been leaning towards 2-4 units. People pay premiums to rent out full units and you have added privacy and easier to get lending on (lenders will count rental income on other units versus won't typically on bedrooms). It is really just preference.

2. That is really case by case and it would be important to discuss your goals with experienced Realtors and contractors. They can go over your goals and determine what hurdles you might have.

3. I used the FHA 203(k) loan. It is a pain to work with but it got the job done. You put 3.5% down on the purchase price and construction costs. There is also the Home Style renovation loan.

4. I converted our garage into an Accessory Dwelling Unit. I looked for detached and the ability to create privacy. Those were really important to me as well as future tenants.

Good luck!

[Jake Andronico]

Quote from @Austin Powell:

Quote from @Jake Andronico:

Quote from @Austin Powell:

Hello,

I am beginning the hunt for my first property. I've had my ear against the door of REI for a few years now and I'm finally ready (within the next 12 months or so) to dive in. The main goal is of course to omit my personal housing cost each month as I will be returning to college. Its just my dog and I so more than willing to sacrifice the majority of the property to the renters to maximize income. I am extremely handy with a vast collection of tools so can perform improvements myself. Ideally it would be mostly cosmetic and nothing serious as my free time is fairly limited with work/school. That being said, if it makes the deal make sense I'm definitely willing to take this on. Here are the questions I currently have -

1.) Is it best to find a property that is already divided or has a separate unit? Or a small multi family?

2.) What're some major issues people have seen with this process? Permitting, zoning, finance, etc.

3.) Are there any financing options that are favorable to this process and include construction costs?

4.) If going the conversion route, what are some property features to look for?

Location - Jacksonville, FL (unfortunately, no basements!)

Thanks in advance for any advice/tips!

Congrats man! I've house hacked twice in Reno, NV and it's changed my life. I was able to do it near a University (which it sounds like that's likely where you're moving to), and renting by the room can be a powerful strategy that not many are willing to do. 

1) "Best" is subjective. If you're willing to live with roommates it'll likely be much easier to find options. 4-5 beds is usually ideal for offsetting the mortgage. 

2) Know your local zoning codes and go down to the planning department if you can. At least here in Reno, they're super helpful. 

3) You're probably going to hear a lot about FHA 203K loans - I have not seen anyone do one successfully (again can be very area specific). My understanding is finding contractors is the most difficult part. Saving up more money isn't the most fun suggestion but it is what I'd suggest. Just my opinion. 

4) Totally depends on zoning. You can do unpermitted work, but when you go to sell it'll be unpermitted work. This may not matter to a buyer, but I've seen it impact values immensely in the wrong direction, even when it was producing significant income. If you're able to talk to the planning department and bring an actual address, that's a great place to start to explore the idea. 

Best of luck to you!!

 Thanks Jake. Did you also rent by the room? If so, how did you mitigate all the potential issues that come with have so many different people under one roof?

Yes, I rented by the room to 4 individuals while I was living there. I would mitigate through trial and error and as much common sense as possible. 

When you ask the question: "If I was renting a room, how would I want the house to be?" - it can certainly help. 

However, there will be issues. 

I would come home after a long day of work and have to deal with things all of the time. There will always be something.

Not trying to sugar coat it. 

But setting expectations is huge. 

And, the less fun it is, and the less people are willing to do it, the higher likelihood of a significant positive impact it will have on your life. 

[Todd Holman]

A lot of great points!  In most rehabs the biggest issues are the unknown problem especially with older homes.  And with todays inflation cost control could be a significant issue for someone new to the game.  For most people starting out they tend to underestimate the time and cost of the project.  Plus, property management for someone who is busy can be a huge problem. Have you considered buying new construction?   I have new properties in Jacksonville (duplexes & quadplexes) with very low down, 4.75% intrest and free property management for 2yrs.

Please let me know if you have any questions. 

Todd Holman