Motivated beginner seeking House-Hacking timing advice!

[Louis Grigoletti]

Hello everyone! 

Just a quick introduction... My name is Louis Grigoletti and I am a new member of the BiggerPockets community. I am currently reading The Book on Rental Property Investing and I feel very excited about the prospects of real estate investing. I currently attend Central Michigan University in Mount Pleasant, Michigan, but I am originally from Brookfield, Illinois. I will be moving to Detroit, Michigan this summer to start work in a controllership role at a large US automaker and I plan on making my first real estate investing move as I relocate to Detroit.

I am looking to purchase a duplex/triplex/fourplex within Wayne County outside of Detroit's "warzones" and house-hack my first property. I would like to get this deal figured out in such a way where I can move in and start work in mid-June, while either finding tenants within the first few months or finding a unit that currently has tenants. I have just recently begun seriously attacking this goal, and I have a few hesitations that I was hoping to receive some tips/guidance on from the community.

Hurdle #1 - Credit Score: I recently got engaged (like last week) to my now-fiance and before financing the ring my credit score was well above 700 (720-750). Now after financing the ring in a not-so-credit-friendly way, my score dropped to about 640. I am using savings reserves from a prior internship to pay off the ring over time, but also aggressively with extra earnings to improve my score. I am aware that this score isn't a deal-breaker, but as a newbie I am slightly concerned with going into a mortgage with this lower score and not a ton of time to increase it dramatically.

Hurdle #2 - Down Payment: I would be looking to use an FHA 3.5% down payment on the property with a budget of under 100k. I currently have about about 1100 of the potential 3500 available, but due to still being a college student, having the ring payments, and some credit card debt (trying to pay off to increase credit score), I am unsure of how much I will be able save for a cash down payment within 4-5 months while working slightly above minimum wage with a small side-hustle. I realize there would be added closing costs, fees, potential slight rehab, etc when closing the deal as well. I know I could seek other loan sources for the down payment as well, but I would have a quick pay-off strategy for those loans. See Bright-side...

Bright-side: The role I will be moving into in June pays very well right out of college (70k) and has a signing bonus (10k) - both gross amounts. I also have about 8k in government bonds which could serve as a down-payment, but they would be taxed unless they are used for higher-education costs (which I feel would be a better way to go with them because they need to be paid no matter what so why have them taxed).

So the real issue I am having is: Should I seek out personal loans/hard money lenders at closing, etc and then quickly pay off the balances once the signing bonus comes in to get started house-hacking right away? Or would it be better to find a place to rent initially for a short period of time and then take more time to find a place/learn the area/close a deal and have cash-in-hand for the down payment with a possible added credit-score boost from paying the ring and credit card debt off fairly quickly?

I feel very motivated to get started right away with house-hacking and not have to rent for a short period of time which involves moving in/out/logistical challenges with renting for only a couple months and the opportunity cost of using that monthly rent towards real-estate investing, plus the loss of rental payments from tenants. 

I think that giving good background on my situation could help with more specified advice. I greatly appreciate those of you who read this fairly-lengthy post and are willing to share some advice as to what may be a good way to go about a beginner's initial purchase. 

I hope to connect with many of you on an on-going basis, especially investors in the Detroit, Ann Arbor, Lansing, Grand Rapids, Mount Pleasant, and Kalamazoo areas. Thank you again! I am glad to be here.

[Scott Passman]

First of all, welcome to BP and congratulations on the engagement!  House hacking is such a powerful strategy and something I wish I would have known about during my college years. 

Personally, I would try to find somewhere cheap to live for however long it takes to pay off the financing for the ring, save up for a down payment, and build a little cash reserve before jumping into a property. If you have outstanding consumer debt (engagement ring) and don't have enough cash to put down 3.5% on the property then you would be playing with some very tight margins with no room to account for unexpected expenditures early on such as an HVAC breakdown, unexpected eviction (if you buy a property with tenants in place) etc. You would be leveraging yourself to a very dangerous point if you are getting a private loan to cover the 3.5% down payment (even if only for a few months) and you will be borrowing at a 96.5% LTV anyway. Nobody can predict when and how the market cycle will drop, but leveraging yourself up that much with minimal/no cash reserves and no REI experience at a time when the market is already very heated is a risky proposition and one you might want to consider building in a little safety net before jumping in. You have a wedding to plan for too which tends to drain funds quite a bit. Good luck with your investing career and congratulations again.