House hacking important info

[Oscar Cardenas]

Hello Biggerpockets.

Its The People's Agent here to give more useful info since I am always learning new techniques working with investor clients and doing investments myself in Oregon.

This post is about deciding which loan product to use when starting out your house hacking journey. Choosing to go FHA vs Conventional is more important than most think. I am a real estate agent and not a lender so I would speak to a lender to confirm before making the decision.

House hacking is mainly desired as a means to acquire long term rentals with a low down payment loan product reserved for owner occupants. In all of these products there is a time you must live in the home before moving out which is usually a year. For cash flow purposes it is generally desired to go multifamily (1-4 units) instead of Single Family Residences since Single Family Residences tend to not cash flow in many states.

FHA: 3.5% down payment with a 1 year occupancy requirement. Single family residences vs multifamily(1-4 units) residences offers no difference.

Conventional: 3-15% down payment, occupancy varies but usually 1 year. Single family is usually 3-5% down then jumps to 15% for multifamily.

USDA: 0% down payment, occupancy 1 year. Single Family Residence ONLY.

I can make another post later on the details of rehab loans.

Judging from the info posted one would assume you can simply buy a multifamily (1-4 units) using an FHA loan then rinse and repeat once a year or two. Turns out it is a bit more complicated than that. After speaking with more and more lenders it is possible to have more than one FHA loan but very unlikely to happen.

So, in places where single family residences get into negative cash flow you can feel stuck after acquiring your first multifamily (1-4 units).

One of My recommended strategies: House Hacking for Complete Noobs.

1st Property: Buy a cash flowing Multifamily using an FHA loan 3.5% down. Your budget also goes higher based on current rents (75% of rents added to income for budget purposes).

2nd Property: Buy a House with an ADU (Additional Dwelling Unit) using a conventional loan. Even though you will get rent from an ADU, Lenders still see it as a single family residence depending on public info and zoning so you should see 3-5% down payment.

3-4th Property: Hopefully by this time your first property has gained enough equity (~25%) to refinance into an investment conventional loan. I would do this ASAP. If successful then you are open to using another FHA loan to buy another multifamily. If not then repeat steps that got you your second property.

There are better strategies like using rehab loans and buying right to be able to refinance into an investment loan very quickly but this post is meant for the people who are likely to be working with agents and lender that are not knowledgeable about the subject. You would be surprised how little agents and lenders know about their subject.

Thank you all for reading and happy investing! Always here to help or partner!