House-Hacking with a refi in two years

[Joel Harrison]

Here are the basics... I found an incredible opportunity for a duplex in an amazing location. However, I don’t have 20% to put down on the place with the math being worked out as a full-on rental property. I can’t make any real positive Cashflow on this property unless I can put 20% down. However, I CAN come out about even. Does it make sense to lock in the property (buy it), house hack it for two years, then refi? Unless something goes absolutely wrong in the market (Nashville), I should have some instant equity, and have even more when I refi, right? I don’t want to lose the opportunity to own in this area, but I also don’t want to sink myself with a bad investment. The hardest part about this is that there are hardly any duplexes that come up in the Nashville market, even fewer at a good deal, and house-hacking seems to fit me best. Would it be smarter/better to just suck it up, let this one pass, and continue to save until I have the 20% to put down on a future opportunity? Should I use what I DO have saved up into a flip to get that higher 20% faster? My agent is pushing me a little to go ahead with this one, as she sees the opportunity that it holds as well.

[Melissa Kirchhoff]

@Joel Harrison - Not to be mean but your agent just probably wants to get you moving! ;-)

I would normally say wait until you find something you can cashflow positive on but only you know if that really does or doesn't come up that would fit that. 

Do you have to wait 2 years to refi? Can you do it in 1 year (also, keep in mind if you're doing 0 down it's probably a government loan and likely it would be FHA and you will be paying a PMI for life of loan (and because you don't have the 20%DP) so that's going to effect your bottom line and you would want to get out of that asap IMO anyway.)?

If so, that's not a horrible deal, I guess it seems better to get into something than wait until you have that 20% (because sometimes other financial stuff goes on and keeps you from getting there, and leveraging seems to always be the stronger solution if you're smart about it) but I personally would want to cashflow plus have equity, but also, in my market, that would be expected. So if you know your numbers and your market and know this to be true and this is really your only opportunity to get in, go for it. 

Future advice if you go this route (this is sorta what my partner did in a smaller sense): Pay down what you can to build up so you can off-set that 100% financing, fix it up and from day one, think of ways to increase the equity in it, keep your eye on the comps throughout the process so you know how to make yours comp out strongly, and when you get close to that year/two, talk to your agent about those comps and see where your strengths and weaknesses are. And before that appraiser comes, get that building into shape and get a good value for it! 

TLDR - It's not a bad way to go, just be smart about it and make sure it makes sense and have your future game plan and go for the refi in 1 year if you can do it! =) Good luck!