My lease ends in 4 months.Is it too early to start making offers?

Question

Hi, this is my first post on BP. My apartment lease ends September 5th and my plan is to house hack a duplex with an FHA loan. This will be my first ever rental property and in a perfect world, I would hope to not be paying both a mortgage and my apartment rent for an extended period of time although some degree of that is likely unavoidable. However, that would still be far more preferable than being stuck moving into some other apartment on a month to month basis while I wait. I have heard that it can take around 30-45 days to close on an accepted offer with bank financing and I know it will take a considerable amount of time making offers to get a good deal accepted. Considering all that, do you think right now (just over 4 months left on my apartment lease) is a smart time to go ahead and begin making offers? I've done a large amount of research and I am ready to put my gained knowledge into action as long as the timing is right. Any input or advice on this would be greatly appreciated. Thanks for any help!

Karl B. · Answer

Now would be a good time to start making offers. It's better to be a month or two early than to have an issue where the closing date hasn't happened and your lease is up. If your market isn't hot, you'll have an easier time getting an offer accepted. When I bought my primary residence I was in the same situation - I started looking in May of 2012 and my lease was up at the end September (my roommate was staying but I was leaving and his relatives were supposed to move in). The L.A. market was beginning to get hot and after maybe half a dozen offers I finally got one accepted at the beginning of September. Luckily, my roommate at the time who was staying in the apartment was cool enough to let me stay three or so weeks longer and so I wasn't totally screwed. And the wild thing is it was a cash purchase and so once the offer was accepted things moved quickly (the process took maybe five weeks - they had to get the renter out of my soon-to-be house as well - the renter wasn't a problem but it took some time - thank goodness my realtor was an all-star).Point is, it tends to always take longer than expected and so looking now is ideal - especially since the housing market tends to heat up in April.

Jay Helms · Answer

Option #1! It is a strategy I use. Keep at it!

Jay Helms · Answer

Yes! @Bret Kingcade. or start a couple months ago :) You're looking to house hack, so you're also looking for a deal. Unless you already have a property lined up, I'd say you're behind on your timeline. 30-45 days to close is accurate, but you must have the property under contract first. How many properties are you analyzing every day?

Jennifer Delmore · Answer

Does your lease have an early release clause if you buy a home? Have you talked to your leasing agent about staying where you're at month to month? We were actively looking and had an offer on a home when our lease expired. They extended us 2 months at a slightly higher rent (but not as much as they wanted to raise us to renew our lease for a full year) while we closed and moved. If you find a place I'd start making offers and just have the reserves to continue to pay the rent til your lease is up if necessary. Remember when you close on your mortgage you "skip" your first months payment (essentially you prepay it in your closing costs, but... whatever...). So if you close in June your first Mortgage payment will be due August 1, so if you have to pay rent in July it's annoying, but not terrible.

Thomas S. · Answer

First thing I would do is sit down with your landlord and discussing your plans to work out hopefully going M2M at the end of your lease. Unless you get lucky 4 months may not be long enough.No point in waiting till you have more cash to invest as equity does not increase cash flow on a property it actually buys cash flow at a rate of $2 for every $1 returned. This will not increase the properties generated cash flow and will result in reducing your ROI.

Natasha Hunter · Answer

Since you are going to be house hacking youll want to get started. Depending on your relationship with your landlord, it may be smart to inform them of your plans and find out what happens if you need to extend for another month Also depending on hot your market is, the seller may not want a super long close. You are correct that you should allot 45 days for an FHA loan. If you're in a hot market anything longer than that may kill your deal so find out what options you have for breaking the lease.

Bret Kingcade · Answer

@Jay Helms Thanks! I really do appreciate you taking the time to respond. It is very helpful for me. I'm happy to work hard knowing that the objective is achievable and not unrealistic. I swear I will stop pestering with questions after this but would you please help answer these last 2 questions for me?1) If I'm having to offer say 80% (made up number) of asking price on average to make the numbers work with a 3.5% down FHA loan, should I expect this to take a lot longer than usual? I know that this is hard to give a specific answer to but what I am trying to ask is whether I have a decent shot at getting an offer accepted within ~30-60 days if I am diligent at making offers regularly or if I should be anticipating a longer wait than that on average (like 3 months for example). Any input you could give from your own past experience would be great. I am just trying to figure out what a realistic timeline on average could be.2) Can this be reasonably achieved with public listings (AKA things I can find on Realtor, Zillow, etc.) or will I need to look more for off market deals to have a better chance?

Bret Kingcade · Answer

@Jay Helms It sounds like I need to get moving! You mentioned something that I'm confused on in needing to find a better deal since I'm house hacking. My plan has been to purchase a duplex with a 3.5% down FHA loan. My issue has been that when I run analyses, I would need to fairly dramatically slash the asking price to make the numbers work to get $100 cash flow per unit once both sides are being rented out in the future. For reference, I'm looking at around 180-250k asking price properties. I know I am competing against investors who are able to put down more money so I am unsure whether I should: 1) Stick to my numbers that work for me and keep making low-ish offers until I eventually can get 1 accepted. Is this a normal, viable strategy? 2) Lower my expectations for return since I am only able to put 3.5% down, or 3) wait until I can make a larger down payment.I've been searching everywhere I can find to try to get this answer and I haven't been able to find anything that answers this directly. You would be a lifesaver if you could offer me any guidance on this. Thank you for the help!