Introduction and Moving out of House Hack into Personal Residence

[Brian Crutchfield]

Hello BP. I am a new investor in the Asheville, NC area. I've been lurking/reading for quite some time and have finally decided to post. Sorry for the lengthy post, but I thought I'd provide some background info before I get to my question.

A little background: My wife and I (and our toddler and newborn) have just started our REI journey this past March. I am currently working on finishing the CPA exam (1 test down, 3 to go) and working for a small CPA firm, and she stays at home with the 2 kids. She has a decent amount of experience in the construction industry as a project estimator, and has also done a fair amount of small rehab work herself. We figured we are a perfect match for the REI world, coming at it from those 2 different sectors. Knowing the ins and outs of the numbers and tax consequences of owning real estate, as well as the realities of rehabbing and the construction industry in general will no doubt set us up to be successful if we continue to work hard towards our goals.

So far: We moved out of our personal residence (SFR) in March of this year, and purchased and moved into a duplex on the other side of town. Purchase price was $167,500 and we are currently renting out the other side for $1,050/month. Once we are able to move out, we are looking at hopefully at least another $1,050/month for the side we currently occupy, making this about a 1.25% (gross rents/purchase price) deal (not bad for our market). We have upgraded this property a decent amount from an aesthetics and general cleanliness standpoint, and put about $7,000 of work into it to begin with (new countertops, a few appliances, new carpet, paint, and tree removal). Several investors have come in to purchase other homes (street has several other duplexes) on the street and have improved these properties as well. I have no doubt that we have earned some equity here. Financing was 90% LTV through a local credit union.

The SFR that we moved out of was NOT purchased with REI in mind and I would purchase it totally different today than I did then, BUT here are the numbers: Purchase price was $202,900 and it is currently renting for $1,575/month. Not a great deal on paper, but we are currently cash flowing a small amount. Home will require a full HVAC upgrade this fall, but several other big items have already been replaced or were upgraded/replaced by the previous owner. We financed this home at 80% LTV through a local bank (here is where I would have saved my capital and gone with FHA or another low money down strategy had I had the foresight, but alas, "it is what it is" as they say).

My plan is to eventually use 1031 to trade up to 8+ unit buildings, then parlay that into either apartments, mixed use, or commercial down the line.

Going forward: House hacking the duplex is clearly not the ideal situation with a toddler and a newborn. We would like to move out by next year once we have satisfied the loan's owner occupancy requirement, and purchase our personal residence that we would like to stay in for several years before we are able to build our dream home. We know that once we move out, our rents will increase with the other unit opening up. The problem is that when I run the numbers for DTI (even using the rental income @75%), we are coming up short of what we would like to be able to qualify for. My question is how are people getting around DTI requirements when you start to own multiple properties? I will be speaking to lenders in the coming months as we move forward, but I'd like to get an idea of what people are doing to circumvent DTI issues. Any other advice on any of the other info is also welcomed. Thanks.