QQ, How do you house hack w/ a friend living in the unit?

Question

Hello,

My name is Leonardo Guzman from NYC, and I am looking to get into real estate. I have a friend who I am trying to encourage to get into real estate but doesn't have the finances now for a 3.5% FHA loan.

He's hoping to move out and rent an apartment, or save up and buy a Coop or Condo. I encourage him to invest in a multi-family home because he can house hack and live for free or reduced rent, and kickstart his investment career.

He says if he decides to buy an MFH, he wants me to partner up with him, mostly finding the deal, putting in on the down payment, and helping him manage the property, while he lives in one of the units.

I'm all for helping my friend, but I don't know how economically feasible this deal will be for me.

I'm trying to think of a creative way to help him.

Maybe I can pay the down payment on the home, and he can use his FHA loan to secure the mortgage. I'll collect the rent from the units, including him, keep the cash flow for a year, and then maybe have him buy me out in a year buy paying my down payment or by paying half the down payment and splitting the cash flow in half.

I haven't analyzed the numbers yet or even seen if an FHA loan is that flexible. I'm in the brainstorming stage.

Do you think this method can work, or do you have another creative solution for this?

Best,

Leonardo

Ed Brancheau · Answer

I was just listening to a BP podcast from last month in which one investor had a similar situation. I think he was the first investor they interviewed.

http://biggerpockets.com/show359

Basically, they bought a duplex in San Francisco that had four bedrooms, two baths, and two large dining rooms. They converted the dining rooms into bedrooms for themselves and got roommates for the other four rooms.

They only put down 3% through an FHA loan cosigned and funded by them and their parents, who were getting to keep the rental profit and a portion of the resale profit (I don't remember that number being mentioned.) I think the down payment was like $40K. And their roommates covered the rent and then some.

They want to renovate and sell the units as condos but because of housing laws in San Francisco due to lack of housing, they have to stay in the duplex for at least a year before they can renovate and resell the property. But they'll likely make about 30% profit after fixing it up and reselling for about $1.8M.

That's $540K profit and, even if they split it four ways with their parents, that's going to be $135K each for basically living free of charge. Of course, they had to find the deal but they had a real estate agent find and figure it out.

Pretty sweet deal!

QQ, How do you house hack w/ a friend living in the unit?

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