Please Tell Me What's Wrong With My 3-year "MTR Hacking" Plan!

[Mircea Gogoncea]

Hi everyone! I love coming up with plans and asking more experienced people to poke holes in them, so here I am.

My wife and I recently bought our first home, which is awesome! We've been dying to get out of paying rent and start building equity.

That being said, I want to supercharge our real estate efforts and actually make some investments, maybe eventually even generate some cashflow.

So I came up with this plan, which I call "MTR Hacking", though maybe it already has another name. Before we get into that, here are the facts:

1) I have a W-2 job, and I also earn freelance income in the arts. My wife is a freelancer and still in school.

2) Our debt-to-income ratio is currently maxed out. Our current mortgage is about $3.6k, and that's very little space left for more debt.

I initially wanted to house hack, but since we're still tied to LA county (because of my wife's studies), we couldn't find anything in this range that would be close enough and big enough. Therefore:

3) The home we just bought is a 3-bedroom + bonus room townhome, the last & best in a row of houses. It's in a non-fancy gated community around the South Bay area of LA.

Now here is the plan I came up with:

Year 1: We live in this new home for a year (we have to anyway - it's a primary residence loan.) During this time, we fix all the minor things wrong with it - there's nothing major, but details can be improved.

Year 2: A year from now (Nov '23), we rent out this home as a MTR, leaving most of our furniture. During this time, my wife and I move into a separate MTR as renters (and don't have to buy new furniture right away.)

According to my research, 3-bedroom houses in our area easily go for $3.5-4k / month as MTRs. And I can definitely find another place around this price that would work for us to move into, ourselves.

Year 3: A year after that (Nov '24), my wife graduates from school, so we're no longer tied to LA, or at least not to a specific part.

At this point, we can LTR somewhere cheaper in SoCal, and use the extra cash to build savings faster.

Year 4: After another year (Nov '25), our MTR income has been coming in for a steady 2 years, so we should be able to use it to qualify for a new loan.

Based on my math, we can then buy a duplex worth ~$500k somewhere else, where we rent a unit and live out the other. We should have enough savings by this point to afford it on a primary residence loan.

Year 5: After another year (Nov '26), we move out of the duplex and we can finally "house hack once a year", like David Greene says.

Why not earlier? Well, because our debt-to-income is currently maxed out and apparently, it would take about 2 years for self-employment income to qualify us for a higher amount.

And that's it! What do you think?

The great PRO is that by EoY '26, we'll have two fully self-sufficient, perhaps even cashflowing homes building equity while we're free to live wherever we want. The great CON is that the plan seems a bit slow.

Also, this should be achievable without a significant increase in income for either my wife or me (although I do expect our income to go up by about $50k during this time), and only through traditional financing.

Do you have any idea how we could speed up this plan or if I can make it any better? I've heard of fancy mechanisms like DCSR loans, but I have no idea if I would qualify, since I'm not a real estate professional atm (super interested in learning more though!)

[Joe Villeneuve]

Many, many things wrong with it.  Here is my short list:

1 - "Maybe eventually even generate some cash flow".  There's no maybe about it.  Either your investments generate positive CF from the start, or don't buy them.

2 - Your Plan has steps that are based on years.  Don't base steps on years...you'll end up buying garbage just because you feel you'd be behind if you don't.  You reinforce this later when you question (more than once) if the plan could be made faster and that the plan is too slow.  Time isn't part of your plan...money is the driving force.  You take each step forward based on a series of steps where there is a financial criteria that is reached...not a time criteria.

3 - There is not PRO to this plan.  Especially when you are willing to buy properties that don't cash flow.  You mention getting loans just because you have higher paying jobs after graduation.  Well, nobody is going to lend you money for an income property if your track record so far shows your current income properties don't generate income.  Would you?

That's just the start, but that should be enough.