Househacking through First Time HomeBuyer Program

[Byron Bailey]

Good morning, All:

I have been on the sidelines, learning from all of you and have decided to pull the trigger on buying my first home. I did not go the hardcore investor route. Rather, I plan on buying a home on a program, live in it for a year, then repeat the process.

I have several questions regarding this strategy. First I will provide the numbers:

I am in Dallas, Texas. I am purchasing a 2019 new build in a developing part of town (Near the State Fair of Texas/Fair Park) for $155K. It appraised at $155K. It is a 3 bed/2 bath/1 car garage w/ 1180 sq ft. The program I used allowed for me to buy the home for $0 down and No PMI on the property, since it is in a low income area. Total cost to close will be around $4000. I believe I should be able to get at 1200-1400 in next year when I move.

Questions:

1. Do you think this is a good plan?

2. What are the key metrics/formulas you used to answer #1?

3. Do you think I should AirBnB it out or find roommates in my first year?

4. Does anyone know of anyway I could potentially buy another home within this first year to expedite the exponential potential?

5. If you have any other comments, suggestions, or any other advice to give a newbie, please share!

[Will Fraser]

HI @Byron Bailey!  Welcome to the world of real estate investing, off the sidelines and on the field!

My math shows that a monthly payment towards Principal and Interest on this loan would be $880 (assuming it is at 5.5% interest and a 30-year loan).  This is important because the answer to your questions #1-2 below are going to depend on numbers.

If your taxes and insurance would be an additional $275/month total, then your cost of housing PITI is $1,155. So once you move out you can figure that you'll collect $1,300/month in which it is rented, you'll owe $1,155 per month on it. Once you take into account normal vacancy for your area (multiply the rent each month by that "probable loss", which in my area is around 5% but will likely vary for you). That tells you how this should average out in the long run. So, if 5% was your vacancy projection then you can "count on" about $1,235/month over the long haul and you owe $1,155 to the bank, the gov, and the insurance company. That leaves $80/month.

In this scenario if you'll self manage then you'll be making $960/year, which isn't great in and of itself, but when it only costs you $4,000 to purchase then you're functionally getting a 24% cash on cash return,  which isn't bad at all.

1. It's a new home so your repair costs should be minimal for the next 7-9 years, so if you are comfortable managing it for the next decade it sounds like a good play.

2. Cash on Cash return

3. Definitely find roomies.  

4. You should be able to form a business and purchase other properties through commercial loans during that year.

5.  Could you find a 4-plex in your area in which the numbers work even better?