Brrrr/house hack 4 unit 5% Down how’s it work?

Question

I’m 21, Real estate agent, In central massachusetts, working on getting down payment/repair cash. Plan on buying a 4 unit within next 6-8 months. My goal is to Brrrr/house hack from 4 unit at 5% down to 3 unit 5% down, 2 unit 5% down because my understanding is the bank looks at it as an upgrade of living so allows a lower down payment. (Please correct me if wrong) and then plan on going back up to 4-8 unit depending on deals at 20-25% down with out moving In. My goal is to maximize my money and Brrrr my way up to as many units as possible going in too bigger and bigger deals as I go. Who’s out here doing this? Is it possible?

Brad Cornell · Answer

Hey @Nick Tebo my wife and I live in Minnesota and just did exactly what you're talking about. We purchased/house hacked a 4 unit property for about $238K using a 5% down loan and are now rehabbing each unit one at a time and then filling them with good tenants as they are finished. We currently have 2 units done and rented and are working on the last two units, one of which we occupy. We are planning on doing the same thing with the refinance because once this thing is filled and we can show stabilized and increased NOI it should appraise for about $335K.If you don't have a killer income the two best things you can do to gain more units quickly are to increase income/decrease expenses, and second begin to build a reputation with investors and future partners. We've been working really hard to increase our income/decrease expenses and one of the ways we did that was to house hack this thing which is now adding $1380 of extra income and we're only two units in. I believe for long term success this is key, so in regard to income I'd focus on killing it as a Realtor and generating as much income as you can.Secondly, the rate at which you will be able to accumulate more properties will be directly proportionate to how fast you build credibility and your network. If you're really wanting to scale and don't have the income to back it up, because BRRRR's take some time, you'll need to begin building a network of investors/partners. This is done through networking, adding value to their lives, and building credibility. We've been doing this for about six months now and at first our investors were a little sketched out by our age and the idea of what we wanted to do. But I will say that as they have seen us make the progress we have on this property and fill it with quality tenants so quickly the credibility we have is increasing. I just met with an investor yesterday and he said for the first time that "he knows enough people that we could comfortably raise $250K." He never would have said that 12 months ago when I initially started talking to him about REI.So because I'm about 12 months ahead of you that would be my advise. Definitely go for the BRRRR but dont forget about income/expenses and building that network.

Tim Swierczek · Answer

@Brad Cornell great advice.

John Warren · Answer

@Nick Tebo the short answer is that, yes, the 5% down conventional on a 4 unit is possible. I don't know what price point you are dealing with there, but here in the Chicago western suburbs we always run into income limits on the 4 units. Most of the 4 units are generating a substantial amount of income ($45-60,000), and there are defined limits on the income the property can have in addition to the income you have as a borrower. In other words, you will need an excellent lender to pull it off. I don't say this to discourage you, as this is the exact strategy I try to have all of my clients use in this area! I also like the idea of continuing to acquire properties for a while with low down payment loans, but don't get too focused on the details of doing a 4, then a 3, then a 2, etc. I personally planned to buy multiple 4 units, but after my first quad I jumped to a nine unit in the Berwyn neighborhood. I found that the deals were better in the larger buildings, and the financing was more common sense.

Michael Facchini · Answer

One other thing to keep in mind....lenders/underwriters will look at a pattern of purchases and start to scrutinize whether your upcoming purchase is truly a primary residence. Meaning, if you bought a 3unit primary, then for good reason decided to move and buy another 4unit primary a year later, then "for good reason" decided a year after that to buy a 2unit primary, the 3rd time around it could be questioned a bit more. The history and pattern need to make sense or lenders might start to push back....since the 5% Freddie HomePossible program is a "home affordable" program for those that don't have the means to put more down on a primary residence, rather than REO investors looking to house-hack. Just something to keep an eye on....

Matthew Roder · Answer

@Nick Tebo like @John Warren said, the 5% down conventional loan may have income limits, depending on the property. You can check at this website to see if the property could qualify without income limits: http://www.freddiemac.com/homepossible/eligibility_lg.html If conventional won’t work, maybe try FHA.

John Warren · Answer

@Nick Tebo focus in on how much "per door" properties are going for. In my area (Berwyn, Forest Park) small multi family properties from 2-4 units are going from 80-100k per door. When I purchased my 19 unit deal, I was able to buy at 57k per door. It doesn't take a genius (I am not one!) to know that it is better to get units cheaper! The units will all rent for $1200 for a two bedroom unit, so if I can buy that unit for 57k I am able to achieve much better cash flow. This is the primary reason people are willing to dive into commercial financing. If I couldn't get better pricing "per door" I would not be leaving the world of fixed, conventional financing.

Nick Tebo · Answer

@John Warren hey thank you so much definitely the advise I was looking for. And I’m glad to hear that you went from 4 unit to 9 units I would love to do that as well. im just looking for the most logical way to get as many units as possible My price point here is you can get a run down 4 unit between $280,000 and $330,000 depending on size, and a nicely updated goes somewhere in the $365,000-$440,000 range again depending on size and extent of work done. with an average rent of $1,000. Ideally one of my statagys im considering would be buying a 4 unit at 5% down around $280,000-$300,000 purchase price, add between $30,000-$45,000 in repair witch will ideally add a good chunk of equity into the property and then within 6-8 month refinance and hopefully appraisis in the high high $300,000s. And from there weather I go into bigger deals or can find a bank that see moving to a smaller unit as an upgrade I’ll move forward with map out where each situation could take me Thank you again!