House Hacking

[Gregory Lamarre]

I live in sunny (and expensive) Miami, Florida. I have a relatively well paying and steady job, and a credit score on the better side of 760. I've owned a comfy 2 bedroom condo for the last six years but I've been toying with the idea of moving into a single home and rent out my current condo. Researching the market I calculated my current condo has roughly between 25-35k in equity, and that's being conservative. 

I can easily clear about $400 monthly in gross income. My girlfriend of 6 years is in on a different strategy I just decided on. I've decided to instead purchase a duplex or triplex, move into one of the units while renting the other(s), and while again renting out my condo. We could potentially live for free while socking away a majority of both of our incomes in order to afford a far better home. 

However the multifamily market here in South Florida can get expensive. The average tag price on  2/2 duplexes in a decent part of town is easily in the upwards of $380k.

Questions: what strategy can we use to carry out this venture? Can anyone recommend a creative financing firm or individual who can help guide me through this? 

Thanks 

[Thomas Franklin]

Gregory Lamarre I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking." If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.