HOUSE HACKING - BEST ADVICE?

[Sebastian Hernandez]

Hello BP Community!

I am in the early stages of learning about Real Estate and the different strategies investor can follow to reach their goals. I have been very interested in the idea of house hacking because it is a great way to save money in rent, generate some cashflow, pay-down the home using tenant dollars and potentially home appreciation. 

For those investor whom have followed this strategy or have studied it, what would be your best advice in order to be successful? what would have have done differently? or done again?

Thank you BP Community for sharing your knowledge!

[John Warren]

@Sebastian Hernandez I have helped multiple clients pull off the house hacking strategy here in the Chicago suburbs. The main thing is to pick an area you feel comfortable living and investing in. If your goal is rapid growth, focus on an area where there are a lot of transactions. If you pick a town where there are only a handful of multi units for sale every year, it will be harder to scale. Lastly, make sure that you run your numbers so you know the building will cash flow well once you move out. Make sure you are accounting for all your expenses and not just your mortgage (PITI).

[Chace Fraser]

Hi @Sebastian Hernandez welcome to BiggerPockets!

House hacking is an incredible way to get into buy and hold real estate investing with a relatively low financial barrier to entry… plus the added benefit of reducing housing costs!

Getting your mindset right, setting goals, and creating a strategy are essential first steps to investing in real estate. It's also crucial to surround yourself with the right people.

There are many people that you will need to surround yourself with. To ensure success you will definitely want to associate with like-minded people, people with experience and who are already doing what it is you want to do, and people who inspire you… not naysayers, negative people, nor critics. BP is a great place to find these people, both virtually and in real life. You can find local meetups in your area by going to Network>Events up in the menu bar. I’ve found that people on BP are incredibly friendly and willing to help.

Besides surrounding yourself with the right people, the two initial and essential members of your professional team will be a lender and a realtor. You need to make sure you find quality, experienced professionals. These two members of your team can make the process great or terrible. They can make a deal happen when it looks like it’s going to fall apart or they can kill a deal that is on track to close. These two team members will help you fill out your team by leveraging their professional networks (inspectors, lawyers, escrow officers, CPA’s, etc). It’s never really too early to start making these contacts.

When it comes to Realtors, they will help you identify which areas of town are good to invest in and what to expect in rents, quality of tenants, how to analyze deals, provide you with investing opportunities (both on market and off market).

Besides figuring out what your goals are, how you want to get started, and meeting like-minded people, the first action item would be to talk to a lender. In my experience working with house hackers, the majority of the questions center around financing the deal.

When it comes to finding the right lender there are a few things you’ll want to keep in mind. Lenders, like realtors, are not all created equal. In order of importance, here’s what I think is important to look for in a lender. You want to make sure your lender:

• Has worked with house hackers before; the rules change depending on what loan type you use and how many units you purchase. There are A LOT OF TRAPS along the way that can/will make the deal fall through (and cause you to lose your earnest money). You want to be sure the lender you choose has navigated them before.
• Can help you strategize the lending piece for this purchase AND purchases in the future
• Is an investor themselves

If you’d like a recommendation for a lender DM me. I have one that I have closed many house hacking sales with (my own house hack included), and checks off all of the boxes above as well. Not to mention she’s licensed in all 50 states.

[Marlen Weber]

@Chace Fraser Thank you for providing us with great information on house hacking and its benefits.

[Evan Polaski]

@Sebastian Hernandez I agree with @John Warren in finding deals where you are interested in living.  As you are starting out, particularly in a year when you can move into your second property (most owner-occupant loans require a year of residency), clustering properties near each other and where you live makes your life a lot easier.  Nothing worse than having to drive 30 minutes to fix something or pick up a check (have your tenants mail them), etc.  

Beyond that, if I could start over, I would buy a 4 family if affordable in the area you want.  Even better, if you are single or significant other is open, is a 4 family with 2 bed units and rent out the second bedroom.  In this case you have 87.5% of the rooms leased, and will likely be out of pocket little to nothing. 

Also as mentioned, run the numbers as an investment first.  Yes, you have to live there, but ultimately this will be a full rental, and the numbers need to make sense.  Chances are you will not get your full mortgage covered these days while you live there, but you should still be out less than your rent elsewhere.

[Sebastian Hernandez]

@John Warren  Thank you so much for your advice. I will definitely keep those great points you noted in mind. What do you believe to be the biggest obstacles house hacking investors must overcome?

[Sebastian Hernandez]

@Chace Fraser Thank you for such thoughtful insight. I think the first point you made about house hacking being a low barrier of entry makes this type of investment very appealing for many investors like myself. 

When thinking of connecting with people, I believe it is very important to bring value in both directions. What are some of the things an early career real estate investor can do to also bring value to the table?

Again, thank you for sharing your knowledge!

[Sebastian Hernandez]

@Evan Polaski Thank you for your thoughtful insight. I truly appreciate how everyone who contributes to this post makes a very helpful point and shares their knowledge. Evan, I see you have experience completing deals, what would you say was your biggest pushback before getting started? 

Thank you!

[Lumi Ispas]

@Sebastian Hernandez, keep in mind one more thing. Not only the property has to appraise, but the property also has to pass the self-sufficiency rule, meaning 75% of income (if it's a 4 unit - the total amount of rents from all 4 units) has to cover 100% of the mortgage payment: PITI.

In Chicago that's a challenge, so make sure your Realtor knows how to navigate everything that will pop-up after you place the property under contract.

Lastly: If the property needs any work, take advantage of the 203K rehab loan or the streamline FHA loan ( lower amount of renovation cost, up to $35,000 including reserves).

Good luck to you!

[John Warren]

@Sebastian Hernandez I am not sure that this is an obstacle per se, but house hacking always involves compromise. A lot of investors have trouble deciding if they want an "A" location, or if they want great cash flow in a B or C area. Sometimes it is possible to house hack in the A locations, but often times the deal is not as profitable (at least on paper). 

[Ricardo Sanchez]

Hey guys! I'm very new to investing in real estate. I want to do an FHA loan on a triplex I have been keeping my eye on. The triplex is 140k and cash flows $1645 a month with 3 units. I will be living in one of the units, therefore the cash flow will be $1220. My mortgage will be $950 including taxes/insurance. Setting aside CapEX and Repairs, $100 a month for each I will only cash flow $70 a month. I'm not quite sure if this is a good investment or not, due to the very low monthly cash flow.

[Matt Nico]

Originally posted by @Sebastian Hernandez:

Hello BP Community!

I am in the early stages of learning about Real Estate and the different strategies investor can follow to reach their goals. I have been very interested in the idea of house hacking because it is a great way to save money in rent, generate some cashflow, pay-down the home using tenant dollars and potentially home appreciation. 

For those investor whom have followed this strategy or have studied it, what would be your best advice in order to be successful? what would have have done differently? or done again?

Thank you BP Community for sharing your knowledge!

Sebastian,

I have house-hacked the first 3 houses I've lived in. My advice would be to get out of NJ. Move to NY or across the river into PA. The taxes are a lot lower, and that will decrease your mortgage payment.

If you want your place to be full all the time, remember to buy in a good location. I'm in a place where I get a lot of college kids, so my rooms are never empty. You cant pick the house up and move it, so make sure you pick the right location.

 Happy housing,

Matt

[Evan Polaski]

@Sebastian Hernandez for me it was getting out of my own head and trusting my instincts that made me offer what I did.  Even though I started in the recession and there was lots of inventory and I could take my time, there was still competition on most deals.  I put my offer in, and there was another offer.  So I went a little higher, and got it.  But immediately, my thought was "what did I miss?"  Thankfully, it all worked out, but I lost sleep a couple nights after I went under contract because of that.

In today's market, it is still the same thoughts.  The difference is there is little room for error in todays prices.  Everything is so thin that I am not really going after rentals.  Flips are still available, here and there, with some margin for error.

[Kevin Zolea]

@Sebastian Hernandez I’m in the process of closing on my first house hack now. The best advice I can give is to just get out there and just take action. Even if it’s just going to a meet up or talking to a lender.

Also, I highly recommend BP’s house hacking book it has helped tremendously. Best of luck!

[Brian G.]

@Sebastian Hernandez buy the nicest asset you can afford. The quality of the asset will make it desirable for you, your tenants thus lowering your turnover. In addition, a quality asset is most likely to appreciate so purchase the most desirable property you can.

[Paul Welden]

@Lumi Ispas Just fyi, The 203k Streamline no longer exists. Back in September 2015, HUD eliminated the 203k Streamline and replaced it with the Limited 203k. The Limited 203k has similar guidelines to the Streamline 203k, but it's different.

Regardless, good job of mentioning the 203k as it can offer many benefits for house hacking. 

[Lumi Ispas]

@Paul Welden, Thank you for the name correction and confirming it is still around. I just had a client using is last month and several using it in the last 6 months. I also called my lender and reconfirmed it is just semantics. The program is around and is called "Limited 203K". 

[Victor So]

@Sebastian Hernandez

Hey!

I’m currently on my 3rd househack right now and what type of househack you do really depends on what stage of life you’re in. If you’re single, you obviously have much more choices then when you get married and especially more than when you have kids. It also depends on what market you want to be.

I’m in Chicago, so if I was single, I would get a single family home or multi-unit with as many rooms as possible and rent by the room.

When I got married a couple of years ago, I bought a duplex, rented out the 2nd unit by the room and airbnbed extra rooms in my unit. My wife was okay with that since the extra rooms were located in the front of the unit and our room was located in the back. We had our separate entrances and we didn’t allow our guests to use the kitchen so it was more private for us.

I’m about to close on my 3rd househack and this time we are not going to share spaces with others.

So I guess you should determine which market you want to be in, what type of househack you want to do, and how you want to execute.

I would listen to all of the househacking podcasts out there like “the househacking podcast” “househacking success” “BP real estate podcast” “BP real estate rookie” and etc.

Follow Craig curelop and read his book as well.

And of course ask lots of questions on BP!

Hope this helps!

[Javonn Musgrove]

Hi @Sebastian Hernandez, Like yourself I to am new too real estate and using the house hacking as my entry. I started my REI journey the beginning of this year. As of 3/21, I just put my first duplex under contract.

Here are the numbers on this deal. 

Brick Duplex

Owner Occupied

AP- 200K

PP-190K

Private money (Dad)

Each unit 3bd/1ba 

Mortgage payment- $260 out of pocket (Monthly PITI before rental income- monthly PITI after rental income)

Investment

Purchase Cap Rate- 9.2%

CoCROI- 9.5%

rent price- $1100/unit+utilities

NOI- ~$17.4K

Debt service- ~$11.5K

Net CF- ~$6K

CF/mo.- ~$489

CF/unit- ~$244.5

Hopefully this helps!

[Craig Curelop]

@Sebastian Hernandez - Welcome to BiggerPockets!

I have done three house hacks myself which has propelled me from a negative $30k net worth to financially free in under three years. It is totally possible if you stay disciplined, learn, and be aggressive with your savings. 

As for what you should do right now.... the markets seem to still be "finding" themselves if you will. I would recommend taking these next few months and listen to the BiggerPockets podcast, watch the webinars, pick up some of the books, and just educate yourself. While educating yourself, continue to save relentlessly. 

When this is all said and done, I hope you will be in a position where you can take the cash you saved and get going on your first house hack! It's an exciting game and very addicting once you get into it! 

[Sebastian Hernandez]

@Kevin Zolea Thank you so much for commenting on my post, seems like you recently got started and are now finishing up your first deal, congrats!

Kevin I see you are in NJ as well, Im curious as to how you found your real estate agent? Would you recommend him/her?

Thank you!!

[Sebastian Hernandez]

@Craig Curelop Thank you so much for you advice! that is exactly what I am looking to do at the moement which is to maximize the knowledge I can gain through meet-ups, books, podcast. Thank you!

I actually just finished listening to the episode you were in number 252, really learned from it and took tons of notes. The greatest lesson was to learn to be uncomfortable!

Thank you!!