Closing on my first house hack - trying to understand how I will qualify for the next

[Adam Wayne]

Hi everyone,

I've been reading the forums, books, listening to the podcasts, and learning so much! I'm currently closing on my first house and I think I have most of the next steps figured out. Because the market is so hot in my area and properties are selling for so much, I couldn't find anything that will come close to cash flowing. On the other hand, by renting out two bedrooms I will be paying only slightly more than I currently pay for rent in my apartment. I'm a remodeler by trade, so I've already planned to remodel the kitchen, turn the family room into another bedroom, move the laundry to the garage and use the extra space to turn the powder room into a 3/4 bath with a shower so I'll have 2.75 baths and 4 bedrooms total. Once I can rent out a third bedroom, my cost of living will be significantly reduced.

Now, my confusion is coming into play with how I will eventually qualify for my next house hack? I am currently making about 70k a year at my main job, working a second job (which wasn't able to qualify toward my income because I haven't been doing it a full year), and my debt-to-income ratio is maxed out on this home loan. I was debt-free before this mortgage, and now my DTI ratio is at 49.7% to buy this $450k house with 10% down. I don't see how there is any opportunity to acquire another property in a year's time? I see everyone talk about this one year turnover time, but it seems like it's based on the assumption that everyone has a high-earning W2, right?

I am aware that if I continue my second job, I will have that income added to my overall income for consideration in the next loan, but I would basically need to make the same amount of money in my second job as I do in my main W2 to qualify for anything else in my area. I did read in The House Hacking Strategy book that you have to have 2 years of rental income for it to qualify as part of your income as well. So, from what I am gathering, the only way that I will be able to take on the debt of another property would be to continue my second job, and wait 2 years until I can claim all my rental income towards my overall income. Does that sound right? If I have to wait 2 years, then that's what I'll do, but I would really only like to do things sooner! Am I missing something? Hoping that you guys could point me in the right direction. I preordered Pace's book about creative financing, so I understand that that could be an option as well. All input is appreciated. Thank you for your ideas! :)

[Albert Bui]

Quote from @Adam Wayne:

Hi everyone,

I've been reading the forums, books, listening to the podcasts, and learning so much! I'm currently closing on my first house and I think I have most of the next steps figured out. Because the market is so hot in my area and properties are selling for so much, I couldn't find anything that will come close to cash flowing. On the other hand, by renting out two bedrooms I will be paying only slightly more than I currently pay for rent in my apartment. I'm a remodeler by trade, so I've already planned to remodel the kitchen, turn the family room into another bedroom, move the laundry to the garage and use the extra space to turn the powder room into a 3/4 bath with a shower so I'll have 2.75 baths and 4 bedrooms total. Once I can rent out a third bedroom, my cost of living will be significantly reduced.

Now, my confusion is coming into play with how I will eventually qualify for my next house hack? I am currently making about 70k a year at my main job, working a second job (which wasn't able to qualify toward my income because I haven't been doing it a full year), and my debt-to-income ratio is maxed out on this home loan. I was debt-free before this mortgage, and now my DTI ratio is at 49.7% to buy this $450k house with 10% down. I don't see how there is any opportunity to acquire another property in a year's time? I see everyone talk about this one year turnover time, but it seems like it's based on the assumption that everyone has a high-earning W2, right?

I am aware that if I continue my second job, I will have that income added to my overall income for consideration in the next loan, but I would basically need to make the same amount of money in my second job as I do in my main W2 to qualify for anything else in my area. I did read in The House Hacking Strategy book that you have to have 2 years of rental income for it to qualify as part of your income as well. So, from what I am gathering, the only way that I will be able to take on the debt of another property would be to continue my second job, and wait 2 years until I can claim all my rental income towards my overall income. Does that sound right? If I have to wait 2 years, then that's what I'll do, but I would really only like to do things sooner! Am I missing something? Hoping that you guys could point me in the right direction. I preordered Pace's book about creative financing, so I understand that that could be an option as well. All input is appreciated. Thank you for your ideas! :)

 Hey Adam cool see another person in the Pac NW.

To get down to the bare bones of what you stated above you'd have to lease up your current house for high enough, such that 75% of your lease agreement(s) is higher than your entire monthly payment assuming you want no financial drag from this current house while you're going to qualify for the next home/upleg property.

If you succeed in leasing up the current house so that it "offsets," the current payment then you can free up most or all of your ability to borrow again and thats "how," you're going to buy that upleg property. With each property it gets a bit harder because imagine property number 3,4,5,6, and so on, you're going to have to juggle multiple rentals to ensure they're all at break even or cashflowing (in real life and on your tax returns when adjusted by the lender) in order to "keep" qualifying going forward. Is quite the financial "dance," of sorts and is basically what we help investors do on our end (mortgage planning) from working with the CPA's, through the rehab, during the refinance, the lease up strategy, where your rents gotta be to keep this game plan barreling forward to reach that FIRE or financial freedom number you have your eye's set on.

If you do happen to be net negative using the conventional/FHA/VA formula of 75% of gross lease agreements - monthly payment (Your PITIA or principal/interest/taxes/insurance/assessments) then your negative calculation will drag you down so that means you either need to make more from your W2 job(s's if you have multiple jobs) or improve the rental calcs or combination thereof.

@Matthew Kwan @Carlos Valencia