How much money should I save up before I start house hacking?

[James Roux]

Hello again guys,

I've posted a few times here and I've been lurking on this website for the last 8-9 months now. My question is how much money money should I save up before I would be comfortable pulling the trigger on my first multi-family property? the average property here in central florida is between 90k -150k I've got my IRA separate which I know I really shouldn't be touching but there's about 6k in that. As far as cash savings I've got about 5500 in there. Saving has been slow since I've been paying off student loan debt and other debts, but my goal is to save up about 15k by summer I feel like this should be a nice comfortable number starting out with a fha loan on about 100k loan or there abouts. Can anyone share some opinions with me on what they think. I want to make sure I've covered all bases before I begin. Thanks in advance for taking the time to read.

[Aaron Montague]

@James Roux 

Good plan.  A couple things to note:

If you are paying extra on your student debt, stop.  I don't know exactly what your interest rate is, but I'm going to bet it is less than 6%.  You should be able to make quite a bit more than that on any real estate endeavor you get into.

15k should get you into a house with a bit, a very small bit, but a bit, to spare.

Here are the cheapest ways into 2-4 unit investing.

0% Down:
NACA (https://www.naca.com)
VA Loan (http://benefits.va.gov/HOMELOANS/index.asp)
Rural Development Loans (Renovations MAY be included)
(http://www.rurdev.usda.gov/HSF-About_Guaranteed_Loans.html)

3.5% Down
FHA (http://portal.hud.gov/hudportal/HUD/topics/buying_a_home)

3.5% AND Renovations
FHA 203k loan (http://portal.hud.gov/hudportal/HUD/program_offices/housing/sfh/203k)

5% Down
Homepath Owner Occupied (http://www.homepath.com)

There are advantages and disadvantages to each of the loans above. All are S L O W and huge amounts of paperwork. Homepath offer low rates and no PMI. 203k is probably the best understood by conventional banks but beware the PMI payments. Rates are so low that even with PMI these are great loans. Make a spreadsheet :)

Here are the expenses I use when evaluating a property:

Taxes

Sewer and Water

Trash

Heat/Utilities

HOA

Cap Ex and Ops (my personal minimum is $150/roof/month)

Insurance

Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage)

Vacancy- as a %. (8% represents 1 vacant month/unit/year)

Compare those against your income and see what you need to pay to hit your minimum numbers.

Bring any deal you find to BP and we'll tell you what we think of it.

Happy House Hacking!!