What advantages do I have for owner occupied housing

Question

Hi! I am a newbie but I've been much more active in my pursuit to get into real estate investing and reading everything I can get my hands on. I currently live in Denver, CO and my main goal is to HOUSE HACK because rent is far and away my biggest expense right now. Listening to the podcasts I've noticed Brandon talking about finding your niche advantage and exploiting it. Here is a list of things that I believe could give me a competitive edge over the outrageous competition in Colorado:

Advantages:

I would be an owner-occupier (I need somewhere to live and wouldn't mind a place that needs some work)
740 credit score
$60k+ desk job
Experience with home repair/woodworking for renovations
I would like roommates as a supplemental income
Debt free

Limitations:

Fresh out of school so not much for a down payment
I would like a place with a garage to do my woodworking

I would GREATLY appreciate some feedback on how to use any/all of my advantages to get my foot in the door of real estate investing! Thanks for reading my post!!

Lizzie Carver · Answer

Hey Justin- Look into the HomePossible (Freddie) product and map--there are some great advantages with that and certain areas of Denver and we just used it on a duplex we'll occupy half of. We were about to make an offer on one duplex, but then found out about this product and realized we would save $300+ on our mortgage payments but the first property fell right outside one of the eligible areas.

Emilio Ramirez · Answer

Maybe worth looking at chfa. Don't remember the income limits but they may be able to provide a grant for the 3% down. That's only for a single family home, however. FHA will also finance up to a 4 plex for 3 or 5% down.

Bleu T. · Answer

Justin,In my opinion your thought of buying a place that needs work, fixing it up, and getting roommates is a good idea.I know buying a fixer works, because I did something similiar. I still live in it because it is a great spot, and also I'm saving a huge percentage on my mortgage compared to what people are paying in rent.You essentially trade a lower price for a bunch of work, which was fine with me at the time.If I did it again, I'd buy it ugly, and in a a great location, avoiding big electrical, plumbing or foundational issues. I'd get a thorough inspection and plan on spending some money as you work your tail off :)If one has a good credit score, a solid job, building experience and ferocious worth ethic, much is possible!I bought my fixer as my second property, renting out my first, but it could work in any order.Cheers

Justin O'Malley · Answer

Thanks everybody! I checked out Freddie Macs Homepossible loan program and they allow a 3% down payment if you're about 640 credit score. Sounds awesome but I'll have to see what their PMI charge runs up to.

Dave Skow · Answer

to be competitive - get 100% pre approved with a lender using whatever hypothetical scenario you want to use so that you are prepared to provide a tight / strong offer to a seller when needed ….consider making the closing period as short as possible and try to get some money earmarked to provide as your earnest money deposit

Cory Carlson · Answer

Go talk to any residential lender and ask around if they have experience in this. Even if they don't it is a pretty simple calculation. The lenders i work closely with view it this way: 75% of the adjoining unit(s) market rent (which is determined by the appraiser) is viewed as income. This is important because it can increase what your loan amount is if qualification is an issue. Sounds like it won't be for you. Then make sure there are not any other requirements in fine print such as certain lease terms, experience required, etc. You can shop loans almost identically as if you were buying a SFH. One thing i would recommend is get representation since the seller pays and get an understanding on the variables required for an owner occupied plex. When inquiring on a duplex, if the seller just renewed leases for a year, then you have some hoops to jump through to move in.. if its vacant its easier.

Simon W. · Answer

My suggestion is to buy a piece of property that you feel comfortable living in and then "hack". Run a simple calculation to see how much additional income you would need to essentially make your monthly payment in half.

Cory Carlson · Answer

I am helping several clients perform this now in Bend, Oregon. My recommendation would be to first find something you like. Luckily you can use low down payment options for house hacking except you will have a PMI. As BP calls it, "house hacking" is a great first time buyers to subsidize their housing costs. Essentially someone is paying half your mortgage payment. The difficult part is differentiating the return metrics with a house that you are living in... I used to overthink it. What are gross rents (including your contribution)? subtract taxes, insurance, PMI, annual estimated repair and maintenance and if it effectively lowers your monthly out of pocket then you're good. Just for example, to be paying $1200 a month out of YOUR pocket (rest covered by the other side) for a low down payment purchase of a $350,000 duplex is great. Build equity, have a place to live and the property appreciates (over time). Comparatively to renting it for the same and your monthly out of pocket is a sunk cost. OR buying a single family home for $270,000 and your monthly out of pocket is more than your $350,000 duplex. My biggest recommendation, avoid paralysis by analysis. This is a place to live first, investment later. You can turn it into an investment later after PMI is gone. A low down payment small multifamily will almost never cashflow after PMI and properly accounting for operating expenses. But it will cost less for more when compared to a single family home.

Simon W. · Answer

How much is the housing there? Are you looking at duplex, tri, or 4?

Justin O'Malley · Answer

Thanks for the replies! So my thought is that I should be living under my means to save money so I can get the house I want down the road. I'm used to low quality college housing so why not stick with it and pocket some funds for a bigger investment. I plan on living in my first home for maybe a couple years then renting out my space and buying another. I've heard Fannie Mae is a good option for owner occupied houses but unfortunately it doesn't have much in my area.